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What do lenders consider when reviewing one’s credit report?

By May 3, 2021May 5th, 2021No Comments

1. Employment history
Aside from your debt amount and your track record of paying your bills, more lenders are adding employment history to the credit checking criteria mix. Creditors may want to review your job history as a means of estimating income stability. A good employment track record—say, two or more years at the same company—indicates you’re stable professionally, and thus a good credit risk. But if you’re employment history is of the job-hopping variety, that could be a cause of concern for lenders, who may either deny you credit outright, or approve your credit application, but at a higher interest rate that helps the lender compensate for the added risk. In case they ask, be prepared to provide a reasonable explanation.

2. Income
Personal income is also a burgeoning factor in loan and credit approvals. Much like employment history, where stability is rewarded with credit approvals and lower interest rates, a steady income indicates to creditors that you have the financial means necessary to cover your debt payments. Any “breaks in the chain” in the form of little or no income, and creditors could view you as a higher credit risk, and place your credit application in jeopardy.

3. Cash flow/liquidity
Lenders increasingly want assurance that you could continue making your loan or credit payments even if you’re incapacitated or laid off. That’s where cash flow comes into the picture. If you run into a financial emergency, creditors want to know if you have any financial assets, like stocks, bonds, money market accounts, or certificates of deposit, that can be used in the short-term to cover your debt in the event of a financial setback. In short, the more liquid assets you have, the more likely you’ll make your debt payments.

4. College degree
A college degree is something of a double-edged sword for credit applicants. While lenders surely recognize the income potential of most college degrees, relative to an applicant with a high-school degree, any burdensome student loan debt could give a creditor pause. In general, college graduates don’t earn big annual incomes right out of the gate. If you add high student loan debt to the story too, lenders may hold back on credit approval, or at the least, offer credit approval but at a higher interest rate. Either way, creditors increasingly are looking at collegiate history as a factor in reviewing credit, especially for younger borrowers without a substantial income and financial payment track record.

5. Length of time in current residence
The longer you reside in one home (especially as the owner), the more likely you’ll be approved for credit. Why? Because “home stability” shows you’ve been able to make your mortgage or rental payments, and thus represent a good credit risk.

6. How often you change cell phone numbers
As we noted above, a stable phone number is a big plus for creditors these days. According to a recent Ford Credit/ZestFinance study, “if the (credit applicant) uses the same cell phone number over and over and over, that helps indicate a level of stability. Stability is usually a very positive indicator for someone to continue to pay on any obligation they have.”

7. Any professional “occupational” licenses
Creditors increasingly view applicants who own professional occupancy licenses in high regard. Official notification that you’re a lawyer, financial planner, doctor, licensed technician or plumber tells creditors that your chances of having a high, stable income are higher than many other credit applicants