Lenders
evaluate credit risk, the likelihood that a borrower will make
payments on time and pay off the loan.
To judge credit risk, lenders typically look at:
Income: Regular and documentable income from earnings,
commissions, investments, rental payments and other sources.
Lenders look for a steady income from month to month and a
stable work history.
Assets: Savings, investments, retirement funds, cars and
other valuables that are "liquid" or easily converted
into cash.
Liabilities: Debts such as mortgage loans, home equity
loans, credit card balances, car loans, student loans and other
consumer debt.
Other Financial Information: Situations that could affect
payments, such as lawsuits, collection activity, recent
bankruptcy or property foreclosure, obligation to pay alimony or
child support, or being a co-signer on another loan.
Payment History: Making timely mortgage or rent payments
is very important. Paying late just once by 30 days or more can
affect both the loan and the interest rate offered you. Late
payments on credit cards, car payments and other bills are also
factors.
Credit Reports: National credit bureaus collect
information and provide reports to home lenders and other
creditors. Credit reports include details on credit accounts and
information on your payment history.
Debt-to-Income: Monthly debt expenses and income get
converted to a debt-to-income ratio. While there isn't a
standard, lenders often have a maximum number that they will
allow a borrower to have.
