Creditworthiness is a key determining factor in whether you'll get approved for a credit card or financing, and several factors determine if you're creditworthy. Creditors and lenders carefully review applications for loans and credit, and your past habits can positively or negatively affect your approval chances.
Credit Scores
An applicant's FICO credit score can contribute to a credit rejection or approval. Lenders check credit reports, but they also check credit scores. Credit scores can immediately tell lenders or creditors if you're worthy of financing. Credit scores range from 300 to 850. The minimum score for loans vary depending on the lender, but if your score is within the 700 range, the majority of lenders will consider you creditworthy and consider your application for approval.
Pay Bills on Time
Increase creditworthiness and improve your chances of getting a loan by paying your bills on time. Numerous factors affect your score, and your payment history makes up 35 percent of your score. Missing your payments and even submitting payments late ruins your credibility with lenders. If you are 30 or more days behind on payments, lenders and creditors begin reporting lateness to the bureaus. A history of lateness doesn't only result in additional fees -- it can prevent future credit and loan approvals.
How Much Do You Owe?
Keeping a low debt-to-income ratio also affects your creditworthiness. Prior to approving a loan or credit request, lenders take a look at your credit report to evaluate your existing debt obligations. Owing an excessive amount on credit cards --- more than 30 percent of the balance; maxing out your credit cards; or having several loans in your name can significantly raise your debt-to-income ratio, and creditors are less likely to extend additional credit if you're overextended. Get rid of present debts and keep balances on cards low to improve creditworthiness.
Other Factors
While the amount you owe and payment history are two of the biggest factors that determine creditworthiness, other factors also play a role in the equation. The length of your credit history, or the amount of time that you've had a credit account in your name affects creditworthiness, making up 15 percent of your score. Some creditors and lenders are hesitant to extend credit to people with no credit history or a short credit history. The types of credit you use make up 10 percent of creditworthiness, thus it's wise to have a mixture of accounts, such as a car loan along with a credit card. New credit accounts influence credit by 10 percent, and this includes factors such as recent inquiries and the number of new accounts opened.
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