Consumer Law

Lenders Are Watching More than Your Credit Score

Your credit report plays a big role when it comes to getting that new loan or credit card. In fact, for years it's been the key in most credit decisions. That's changing though.

As the US economic recovery continues, banks, credit card companies, and other lenders are much more careful when deciding who gets credit. You may be surprised at the kinds of information they're looking at.

FICO Grows

The Fair Isaac Corporation created the all-important FICO score. It's the most commonly used credit rating or score lenders use in their credit decisions.

The company is offering new information to its customers: Banking behavior. If you apply at your bank for a loan or credit card, along with a credit report and FICO score, your bank may get information on your account balances, withdrawal and deposit histories, and the like. The bank can use this information to gauge how much of credit risk you are:

  • Direct deposits have stopped or decreased in amount? You may have lost a job or taken a lower paying one
  • Savings have dwindled and credit card balances have gone up? You may be having trouble making ends meet

Income Guess-timates

The credit bureaus estimate your income and let their bank and lending customers know what they find. The estimates are based on your credit debt, available credit, mortgage balance, car payments, etc.

Their estimate can be compared to the income you listed on your loan or credit card application to see if you're eligible for the credit.

Home Value

Do you owe more on your home than what it's worth in today's housing market? Does your credit report show timely monthly mortgage payments but no decline in your mortgage balance - an indication that you have an interest-only mortgage?

These and other factors related to the value of your home may impact your creditworthiness.

Daily Expenses

Lenders may look at your record of paying rent and utilities. Generally, these types of payments aren't included on your credit report. But make no mistake, they can be. For example, large multi-state gas, electric, telephone, and cable TV companies may report payments to the credit bureaus.

As for landlords, they can use online services to report non-payment of rent without having to be paying customers of the credit bureaus. Also, tenants who've been evicted or sued in small claims court for non-payment of rent may have entries on their credit reports about these legal actions.

What You Can Do

There are many things you can do to increase your chances of getting that loan or new credit card:

  • Don't forget about your credit report. It's still very important. Check it at least once a year, and fix any errors immediately
  • If you're turned down for credit, you need to be told why. If it's a credit report problem, investigate and fix it. If it's because of an income estimate made by a credit bureau, gather your papers and prove what your income actually is
  • Switch banks. If your bank didn't like what it saw in a report about your banking habits, go to a different bank. Lenders need customers, and many don't like losing the customers they do have
  • Pay your monthly expenses on time. Try using automatic bill pay through your bank or automatic withdrawals from your savings or checking account

Like it or not, credit makes the world go around. In some form or another it's almost a necessity for most of us - mortgage, car loan, student loan, etc. Knowing what banks and creditors may be looking at in your financial history, and knowing how to handle some potential problems, may make the difference between getting the credit and not.

Questions for Your Attorney

  • I can't get a credit reporting agency to remove incorrect information from the report. What should I do now?
  • Can my bank share my banking information with other banks and lenders?
  • If I ask, can a creditor have bad information removed from my credit report?
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