What does a good credit history tell a lender about a borrower?
A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores are the standard for credit scores—used by 90% of top lenders.
Credit score ranges help lenders determine the risk of lending to a borrower. Credit scores are based on factors such as payment history, overall debt levels, and the number of credit accounts. You credit score can be a deciding factor on whether you are approved for a loan and at what interest rate.
The easiest way to define credit history is how long you've had credit and how well you've handled it. Lenders also look for a consistent history of paying your bills on time. A pattern of late or missed payments makes it seem like you have trouble repaying debt, so they may see you as a risk.
Along with many other pieces of information, potential lenders, and creditors – including credit card companies, mortgage lenders and auto lenders – may use your credit scores and credit history to help make lending decisions. These companies want to know how likely you are to pay the money they lend back as agreed.
“A high credit score means that you will most likely qualify for the lowest interest rates and fees for new loans and lines of credit,” McClary says. And if you're applying for a mortgage, you could save upwards of 1% in interest.
Your credit rating or credit score is a number that tells lenders how likely you are to make payments on time.
Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
Having good credit can make achieving your financial goals easier. It could be the difference between qualifying or being denied for an important loan, such as a home mortgage or car loan. And, it can directly impact how much you'll have to pay in interest or fees if you're approved.
Lenders and brokers consider information such as: your income (before taxes) your expenses (including utilities and living costs) the amount you're borrowing.
If you apply for credit, such as mortgage, auto loan or credit card, the lender (with your permission)will check your credit report and credit score from one or more of the major credit bureaus.
How do lenders look at credit?
Your income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered. The ratio of your current and any new debt as compared to your before-tax income, known as debt-to-income ratio (DTI), may be evaluated.
A credit history is a way for lenders to see how you've handled debt in the past. Lenders can take a look at credit history to determine whether applicants are worth lending to or if they pose a risk. Your credit history serves as a record of how you've managed credit in the past and the types of credit you have.
Lenders look at your income, employment history, savings and monthly debt payments, and other financial obligations to make sure you have the means to comfortably take on a mortgage.
Good credit management leads to higher credit scores, which in turn lowers your cost to borrow. Living within your means, using debt wisely and paying all bills—including credit card minimum payments—on time, every time are smart financial moves.
We provide a score from between 0-999 and consider a 'good' score to be anywhere between 881 and 960, with 'fair' or average between 721 and 880. Before you apply for credit, it's a really good idea to check your free Experian Credit Score, so you can make more informed choices when it comes to applying for credit.
They also use them to determine how much interest they will charge you to borrow money. If you have no credit history or a poor credit history, it could be harder for you to get a credit card, loan or mortgage. It could even affect your ability to rent a house or apartment or get hired for a job.
FICO Scores help lenders quickly, consistently and objectively evaluate potential borrowers' credit risk. So when you apply for credit or a loan, there's a very good chance your lender will use your FICO Scores to help them decide whether to approve you, and what terms and rates you qualify for.
FICO ® Scores are the most widely used credit scores—90% of top lenders use FICO ® Scores.
One of the best things you can do to improve your credit score is to pay your debts on time and in full whenever possible. Payment history makes up a significant chunk of your credit score, so it's important to avoid late payments.
- An unsecured credit card with a decent interest rate, or even a balance-transfer card.
- A desirable car loan or lease. ...
- A mortgage with a favorable interest rate. ...
- An upper hand in the rental application process. ...
- The ability to open new credit.
What is very good vs excellent credit?
Excellent Credit Score: 780-850. Very Good: 720-779. Good: 690-720. Average: 690.
- 'I need to get an extra insurance quote due to … ...
- 'I can't believe how much work the house needs before we move in' ...
- 'Please don't tell my spouse what's on my credit report' ...
- 'I'm still working out the details on my down payment'
Documents to provide:
Tax returns (including W-2s and/or 1099s) from the past two years. Employer contact information. Business records if self-employed. Other income sources such as bonuses, child and/or spousal support, disability or VA benefits, pension, Social Security or other sources.
Red flags for mortgage underwriters include the following: Bounced checks or non-sufficient funds fees. Large deposits without a clearly documented source. Monthly payments to an individual or non-disclosed credit account.
Following the guidelines below will help you maintain a good score or improve your credit score: Watch your credit utilization ratio. Keep credit card balances below 15%–25% of your total available credit. Pay your accounts on time, and if you have to be late, don't be more than 30 days late.
