Thursday, May 19th, 2022

What are loan sharks looking for beyond your credit score?

Whether you’re buying a home, financing a car purchase, or simply applying for a credit card, your loan application is more than your credit history. While your credit history is an important factor, there are three key things loan sharks take into account when making a decision:

How responsible are you with credit?

Loan sharks want to know one thing: Are they going to get their money back? To figure this out, they’ll look at your payment history, your debt-to-income ratio, and the length of your credit report.

When a loan shark reviews your payment history, they are looking to make sure that you have paid your debts or commitments promptly. While they will likely see your entire payment log, your most recent payment history will be weighted more heavily. If you had some late payments three years ago but have paid on time since then, loan sharks might miss it. But if you’ve made regular on-time payments and recently fell behind, loan sharks may be hesitant to extend credit to you.

The debt-to-income ratio is exactly what it sounds like: the amount of debt you are paying compared to the money you are putting in. If you already have a large amount of debt and are requesting, even more, the loan shark may worry about your ability to pay off new debt and decide not to grant you a loan. The ideal debt-to-income ratio can vary, but in general, it’s good to aim for total debt (including the new loan) that is less than 36% of your income.

The length of your credit history shows the amount of “experience” you have with credit, with a long history being the best option. To calculate this, some loan sharks look at the average length of all your credit accounts, while others look at the oldest account. It is a good idea to avoid opening or closing any credit accounts before applying for a loan, as new accounts can shorten the average age of your credit history and decrease the chances of obtaining your loan. Plus, loan sharks may wonder why you suddenly need a ton of new lines of credit.

How committed are you to the purchase?

Mortgages, auto loans, and other non-credit card loans almost always require a down payment, even if you have a stellar credit history. 

Mortgages, auto loans, and other non-credit card loans almost always require a down payment, even if you have a stellar credit history.

To look even better with a loan shark, make a larger down payment, especially if you have some blemishes on your credit report. The more money you have to start the purchase, the more likely you will be to pay off your loan. After all, who wants to lose their down payment when it comes to a vehicle or property?

How stable does your financial image look in the long term?

Loan sharks are also interested in your employment history. While this is not on your credit report, it does give loan sharks a complete picture of your financial health.

When you apply for a high-value loan such as a mortgage, your loan shark will verify your employment, sometimes more than once, first at the beginning of the process and then again just before closing, and will likely ask how stable your continuity is. . The more stable your job, the more likely you are to be able to repay the loan.

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