What Determines Credit Approval?

Factors That Determine Your Credit Worthiness

There’s a variety of factors that contribute to one’s credit worthiness.  Pretty much every one of these factors culminates in your credit score.  However, these factors still come into play on credit decisions.  Credit decisions aren’t just approvals and denials but also the amount of credit, interest rate, or duration of a loan.  Here are the main factors that contribute to an individual’s credit worthiness.

Your FICO Score is the culmination of all these factors. (Image: FICO)
Your FICO Score is the culmination of all these factors. (Image: FICO)

Length of Credit History

The length of an individual’s credit history is important for a variety of reasons.  The main reason the length of your credit history is so important is that it gives credit rating services more data to go off of.  Chances are, the further back your credit history goes there will be more information and data to go off of.  A larger sample size to go off of means the programs that generate credit scores will be more willing to assign you a higher credit score.

Second, loan origination solutions and the systems or individuals who make the final decision concerning credit or a loan, are looking for how an individual handles financial stress.  For example, take a recession.  If the applicant managed to make all payments and keep a steady income during a time of financial stress, it shows that they are a safe bet as they can handle the worst scenarios.  Going back to the main point of credit history, people with a greater credit history have more historical data showing how recessions or economic lulls affected their finances.

Recent Hard Inquiries

Hard inquiries, with regards to credit cards and credit, are made when an individual sends in an application for a form of credit.  The more hard inquiries one has in their credit history, the more desperate they appear.  It shows to lenders and credit rating services that an individual isn’t having luck getting the credit or loans they need and again, shows desperation.  Hard inquiries stay on one’s credit history for two years or more.

Age of Oldest Trade

This goes back to the length or credit history.  Essentially, if you have a more detailed credit history, creditors can make a better decision that reflects your ability to make payments regularly.  If you have credit approvals dating back more than three years, the age of oldest trade will likely help you get approval.

Total Credit Used

Credit utilization is very important and pivotal in determining one’s credit score.  Credit experts, for the most part, agree that exceeding 30% of your line of credit is dangerous and will adversely affect your score.  Always make sure to monitor your credit card accounts in addition to how many outstanding loans you have.

Number of Delinquencies

Probably the most practical and logical strike against one’s credit score, not making payments on time can drastically affect your credit score.  Many experts say that accidentally missing one payment won’t do too much to affect your score while missing two consecutive payments, can wreak havoc on your credit score.

Other Forms of Credit and Loans

Again, the idea of having a variety of credit cards and loans relates to the idea of the length of credit history.  If you have or had premium credit cards combined with loans you regularly make payments on including a mortgage or installment loan, your credit score will likely be aided by those loans.  It shows that an individual is serious and invested in their credit history.

Who’s Making The Final Decision?

There’s a combination of people and programs that make the final decision regarding credit or loans.  With many loans, there’s both an automated and personal factor when making the decision.  Loan origination solutions and programs will pull your credit history and credit score and decide whether or not a loan should be granted.  Additionally, loan decisions are made my live human beings that can decide how much or how little to loan.

What’s the Deal with White Roofs

White Roofs, Fighting Climate Change!?

If you’ve ever gotten into a car with black leather or cloth seats on a very hot day, you’ve probably noticed that it’s much hotter in the car than outside. Moreso, cars with lighter interiors like tan or beige don’t usually get as hot as cars with dark interiors. It’s a fact of life we’ve all accepted but have you ever given any thought as to why this is the case? Also, how does this relate to “white roofs?”

First and foremost, to understand why dark interiors get hot and why white roofs are preferred, we need to dive into some science. The most important aspect in understanding why black cars get hot and why consumers prefer white roofs is this. Black surfaces absorb all visible wavelengths of light. When a black surface absorbs light, the light is turned into another form of energy, heat. So essentially, sunlight to surface, surface to heat. Compare that to a white surface which reflects all visible light. Instead of absorbing light and turning that light into heat, light is simply reflected off of a white surface. Because the light is reflected, there isn’t an opportunity for the light to be turned into another form of energy, in this case, heat.

Going back to the example of the hot car, on a hot sunny day, cars with black leather will absorb the sun’s rays creating an oven while cars with white interior reflect the sun’s rays resulting in minimal temperature change. Interestingly, the same phenomenon occurs on any dark or light surface, including roofs.

Over the past few decades, there’s been a trend among consumers and businesses to change up the roof over their heads. In many cases in past decades, flat roofs would be covered with a black coating. This black coating prolonged the life of a roof and made buildings more energy efficient. However, now that the overall population has become more climate conscience, we’ve realized a major drawback of traditional roof coatings.

Dark roofs absorb light creating an insane amount of heat. That heat is trapped below the Earth’s atmosphere contributing to climate change. Additionally, the roofs aren’t energy efficient as they increase a building’s overall temperature. Enter the white roof. White roofs reflect the sun’s rays which mean heat isn’t being trapped under the Earth’s atmosphere. Furthermore, white roofs keep a building cooler and more energy efficient.

Using the science behind what makes a car with black leather hotter than a car with white interiors, roofers have managed to help fight climate change and cool buildings. Most consumers and businesses have begun installing white roofs to limit energy costs and to help fight climate change.