- Why do you need credit?
- Will you be able to make monthly payments?
- Can you afford the fees?
- If you already have credit, do you need more?
| How lenders decide When you apply for credit, you’re going to be asked a number of questions. Most lenders ask about your income and expenses, how long you’ve been at your job, whether you have savings, and what kind of assets you have, like a home, car, or investments. Your answers, along with your credit report, will help them decide whether they can give you credit. Know the answers to these questions before you apply for credit: When you apply for credit, the lender will often look at the “Three Cs” to decide whether you are a good risk and if you can pay back the loan. They get this information from your credit report. 1. Capacity Capacity is your current and future ability to make payments. In other words, it’s your income. All lenders will look at your income and they like to see that you’ve held the same job for at least a year. They also look at how much debt you have compared to your income. 2. Collateral Your savings and other assets can be used to get loans—this is considered collateral. Lenders look for income, savings, and investments. They also look at your ability to manage money. Some lenders (but rarely credit card companies and consumer installment loan providers) will look at other available resources you could use to pay back debt. 3. Character This is your reputation for paying bills and debts in the past. If you have a good credit history and repay your loans on time, you increase your chances of being approved for credit – depending on how much you ask for of course. Your credit score is a lender’s way of judging your character by keeping track of your past with debt. | |