The Criteria Lenders Look For When Handing Out Loans And Credit

[Jun 24, 2008.]

 

Searching for a loan has never been an easy process and with the recent credit crunch that process is all the more difficult. While lenders were far more easy going when it came to dishing out loans a year ago, the sub prime mortgage crises and the resulting negative effect has caused those lenders to tighten policies and create strict criteria for potential borrowers.

This means that now, more then ever, potential borrowers need to understand what it is lenders look for when it comes to who they hand credit and loans to. In such times of economic hardships, loans and credit can be difficult to attend but not entirely impossible. First, you will have to meet the lenders harsh criteria.

Credit reports will always be an important indication for lenders on if the borrower is right for the loan or credit extension. You will need to know what goes on the credit reports and how such events like foreclosure and debt can affect your credit score. Of course knowing your credit score is vital. By law you are able to receive one free credit report per year. Make sure to take advantage of this to keep track of the score. Lenders will be looking for a high credit score with few blemishes on the report. If you find that you do have a bad credit rating then work towards repairing that damage immediately.

Income is a pretty big gauge on if you can pay the loan back. Lenders want to know that you will be able to pay the loan down the road and that you will not default on payments. Be prepared to hand over pertinent tax information and employment history. Ideally, you will want to have established an appearance of reliability when it comes to jobs either staying in your current job for more then two years or that your past jobs have been far longer then a handful of months. You may also be asked to present information on other loans and financial obligations you possess. The lender may refuse you the loan or line of credit if they do not believe that your current financial situation is enough to take care of prior obligations, living expenses, and the new loan you are seeking.

Lenders will take a look at your assets, if you have any to help determine the likelihood of repayment. Owning your home, car, or other vehicles is a good sign only if you are up to date in payments.  How much you have in the bank is also something that lenders will be looking at. The more the better, as this will show dependability and responsibility on your part.

With the harsher criteria and guidelines used by banks and lenders, consumers are finding it far more difficult to find a loan. If they do find a loan even if they fail to meet the standard requirements held out by some lenders it is very likely that the loan will have a high interest rate or other undesirable features.

Bottom line, be careful who you borrow from and how much it is. Be aware of your financial standings as it appears to lenders. You may think that you present a low risk borrower, but the lender may disagree. Be knowledgeable, savvy, and careful before you go out and find a loan.