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.
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.