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| How Credit Affects You |
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What Lenders Look For
The Guidelines for Granting CreditLenders typically have guidelines they use to determine whether to grant a loan or credit request. To judge credit risk, lenders typically review the following areas of your financial background:
- Income — regular income from earnings, commissions, investments, rental payments or other sources. For most loans, lenders look for a steady income and stable work history.
- Assets — savings, investments, retirement funds, cars and other valuables that are “liquid” or easily convertible to cash.
- Liabilities — debts such as home loans, home equity loans, credit card balances, car loans, student loans and other consumer debt.
- Payment history — history of making payments to other creditors. Making timely payments is important. Making a late home loan or rent payment just once by 30 days or more can affect both the loan amount and interest rates for a home loan. Late payments on credit cards, car payments and other bills are also factors.
- Credit reports — reports provided by national credit agencies to home lenders and other creditors. Credit reports display information about credit accounts and payment history. (For more information about credit reports and scores, review Credit Reports and Credit Score.)
- Debt to income ratio — ratio that compares monthly debt expenses to gross monthly income. Lenders often have debt and income ratio guidelines they follow when considering a consumer’s request for credit.
- Other financial information — situations that could affect payments, such as lawsuits, collection activity, recent bankruptcy, property foreclosure, obligations to pay alimony or child support or being a co-signer on another loan.
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