Seeing Yourself the Way Creditors See You

Unless you are a crazy person, you probably see yourself as a nice person. You give up your seat on the bus to little old ladies, you are honest about your income taxes. Now it is time to look at yourself the way credit providers look at you.

Whenever you apply for credit, reputable credit providers evaluate your application and look at different things to make sure you are able to pay back the credit you are requesting. There are three important criteria’s that they use in evaluating your credit worthiness and it pays to know what they are:

Character:            

Unfortunately this has absolutely nothing to do with giving up your seat on the bus for old ladies or being nice to the waitress, but when a credit provider evaluates your character it looks at your credit history or how well you have or haven’t handled credit in the past. They look at if you pay your credit accounts on time, stopped paying your child support, been sued by any of the creditors in the past, and so on.

Capability:

Credit providers don’t want to give you extra credit unless they believe you can afford to repay it back. One of the key ways that creditors evaluate this is by your credit score and your credit reports. Creditors will look at your income, the amount of debt that you are already in, and perhaps evaluate your assets. If you have applied for a lot of credit in the past, this means you are a credit risk and so they might not give you any credit or they might give you less credit that what you’ve asked for and charge you a much higher interest rate.

Collateral:

If you are requesting for a lot of credit and your credit history is nonexistent to bad, then your credit provider will want to know whether you have assets you could use to secure the debt or guarantee that you will repay the money. So if you are a home owner, you might have to use it as collateral and if you do not have any assets, they might turn down your request for credit.

But wait, there is more… these three criteria’s used by most credit providers don’t just determine whether they will approve or deny your request for credit, they also have an impact on how much credit you will be given; therefore your interest rate and there will be other terms that will be applied to your loan.

Fun fact, if you didn’t already know this; there is an inverse ratio at work, which is the higher your credit score, the lower the interest rate you will get.