What Makes You a Responsible Borrower in the Eyes of Lending Companies 

If you’re eyeing a home, auto, or personal loan, you may be wondering how you can improve your chances of getting a good offer. If the lending companies you’re applying to view you as financially stable and consider you a good bet for paying back your loan on time, you’re more likely to be approved for a mortgage, auto, or personal loan. Here are some of the things these companies look for when deciding if you’ll be a responsible, reliable borrower:

History of stable credit accounts

Typically, the lending companies are looking for several different credit accounts plus a good history with at least several years of keeping those accounts in good standing. One of the factors used to calculate your credit score is the average age of your accounts.

This means that if you’ve had your student loan account for four years and then get your first three credit cards all at once, you could be dinging your score and cutting down on your chances of a good mortgage offer by bringing down your average account age. So if you’re thinking of applying for a loan anytime soon, try to avoid getting any new credit cards until afterwards.

Stable income

You need to be pulling money in on a regular basis if you’re going to afford a personal, mortgage, or auto payment on top of food, utilities, and other necessities. So the companies will want to know about your employment history and how much money you’re making. You don’t necessarily need a cushy job to qualify for a loan, but regular income and regular employment are big here.

Keeping up with your current credit

Paying the minimum amount on each credit card and loan each month is just that: the minimum. Failing to pay the minimum will result in undesirable things like late fees, delinquencies, and negative marks on your credit report.

But if you do make your minimum payment every single time, then over the years that will turn into a good track record of keeping up with the amount of debt you incur. This is something that lending companies look for because it shows you have the ability to prioritize your payment obligations and get money to your lenders on schedule, which is important for them since it allows them to make a profit on your loan.

Paying a little more than the minimum on each account can be an even better idea. It shows that you’re interested in paying off your debt early, that you’re proactive, and that you’re really on top of your budget and your spending habits. However, if you’re not sure your budget can handle this, just paying the minimums is fine.

Lack of any negative marks

Negative marks on your credit record are likely to make you a much less attractive candidate for a credit card or mortgage, unless there are mitigating circumstances. Negative marks show up on your credit report after you’re reported to the credit bureaus for nonpayment by someone like your creditor or a collection agency. For example, you could be reported as delinquent on a student loan account if you don’t pay.

These negative marks tend to stay on your record for years unless you can get them removed, which is why it’s important to check over your credit report each year and make sure no negative marks have been put on your record incorrectly. If you’ve been the victim of identity theft or if a clerical error resulted in a negative mark, you may be able to get it removed and thus improve your credit report and your viability as a candidate for a mortgage.

Lack of multiple recent credit applications

Credit card applications and other credit account applications (such as applying for a personal loan) typically cause a hard credit check, which can ding your score by a tiny bit. Typically, this doesn’t make much of a difference unless you apply for a lot of different credit accounts at once.

If you want to build up a wallet full of credit cards to reap the full range of benefits available, take it slow; lenders tend to look at a grouping of credit applications as a red flag since it could be an indication that you’re desperate for money. This is another reason why you might want to hold off on more credit card applications until after you’ve been approved for your mortgage, auto, or personal loan.

These are some of the factors you’ll want to keep in mind as you prepare to apply for a loan, such as a personal, auto, or mortgage loan. The more you can improve your credit before applying, the better your chances of getting a desirable interest rate that can help you save money over the years as you pay off the loan.