Foundations of Good Credit

The main tool lenders use is your credit score because it gives them a quick picture of your credit history. Good credit health is critical to getting the loan you want. Here are some of the things lenders assess when deciding whether or not to give you a loan: • Credit age: Lenders will want to see a long credit history from a variety of financial institutions. Lenders love to see cards that have been open for a long time, even if you don’t use it today. Closing accounts when you pay off debt only lowers this score (sometimes just temporarily). Think about keeping some accounts open that you’ve had for a long period of time, even if you don’t use the card. • Credit card utilization: Financial institutions will want to see a credit card utilization below a certain range, though each has its own scale of what’s acceptable. It’s a good idea to use less than 30% of your available credit. Lenders want to see that you have a great history of paying down debt and keeping usage low. • A blemish-free history: Mortgage companies want to see that you’re able to repay loans. A missed payment will ding your credit score and show on your file for lenders to see. Always make payments on time. • Debt-to-income ratio: Your credit utilization figure, total debt, and your income will allow lenders to calculate your debt-to-income ratio. This allows them to assess risk by looking at your capacity to repay a further loan. That’s why it’s important to keep your file up to date and to keep your debt low. • Collateral: Lenders will want to see what kind of assets you have that could be used to repay the loan should you default. Collateral could be equity in a house or business. This will provide security against the loan and increase chances of a loan being approved.