Secured Loans

Factors Which Affect Whether People Can Get Credit

When you apply for credit, a lender will consider a number of factors to decide whether to extend a loan. Before lending money, a financial institution must determine whether the applicant presents an acceptable risk and understands debtor responsibilities. If there is a high risk that the borrower will default on the loan based on past repayment history or current liabilities, the request for credit may be denied. Understanding the factors that affect a lender's decisions may increase your chances of getting the financing you're looking for.

Income and Liabilities

Whether you are applying for a secured loan, an unsecured loan, a credit card or a charge account at a department store, the lender will request details about your age, income, assets, liabilities and work history. If your income falls below a certain level, the lender may decide that you have a high risk of defaulting. With larger loans, such as a mortgage or car loan, the lender may also consider your employment history to determine whether you are likely to remain in the same position and continue to earn a comparable income in the years ahead.

If you are applying for credit with another individual, that person's income may also affect your ability to get a loan. Many borrowers must combine their income in order to repay larger debts, or to ensure that they'll have the proper resources to meet their financial commitments. If you are applying for credit with a spouse, for instance, your spouse's income and credit profile will influence the lender's decision. If you own property, such as a house, or you have lived at the same address for a number of years, a lender may be more likely to extend credit.

A lender may also consider your current debts. If you already have significant financial commitments, such as a mortgage, an automobile loan and several credit accounts, your application may be denied. Lenders will try to evaluate your overall financial picture to determine whether you are a good credit risk. If you're applying for a secured loan, which is guaranteed by personal property, a financial institution may have your property appraised to determine whether it has enough value to serve as collateral.

When you're applying for credit, it's important not to apply for too many loans or credit accounts. Each time you apply for a loan or a charge account, a note is made in your credit report. If a lender sees that you have several open applications for credit, or that you have a pattern of opening multiple credit accounts and taking on new liabilities, this pattern may harm your chances of qualifying for a new loan.

Credit Rating and Payment History

Your credit rating has a significant effect on your ability to get financing. This report reflects your complete financial history, including applications for loans, repayment of debts, payment of routine household bills, bankruptcies, insolvencies and registered addresses. Based on your history, you are assigned a numeric score, which can change over time. If you have a high credit score and you've established a history of repaying your debts, a financial institution is likely to consider you a good candidate for financing.

Once you understand the factors which affect whether people can get credit, you may find that it's easier to qualify for loans. If you have a poor financial history, you can improve your rating by paying bills on time, repaying any outstanding loans and avoiding new debts. Request a copy of your credit report from one of the three major reporting agencies to confirm that your financial details are correct.