HOW CREDIT IS GRANTED
Have you ever wondered why you were not granted a line of credit that you applied for? Since the Equal Credit Opportunity act makes it illiegal fro you to be denies based of of sex, race, martial status, national origin, religion, age, or socioeconomic level, those are not why you are being denied credit.
There are four main points that credit grantors evaluate your credit based on, capacity, capitol, character, and collateral.
Capacity-
This is your ability to pay back or repay a loan, or even control having a higher credit limit. Most people that own expensive or luxury items must have pulled out a loan to afford them. These loans require you to have some sort of steady income, capacity is your ability to demonstrate future earning potential to ensure that the creditor will get the money they loaned out back. Debt-to-income ratio is one of the major tools to measure capacity. Debt-to-income ratio is measured by totalling all of the monthly debt and dividing it by your monthly income. Many banks will not loan money to you if your rations is over 50%.
Capital-
This is the net worth of your possessions. This is expressed monetarily. Banks look at this number thinking about how if things were to go financially bad for you, you would have plenty of assets to sell off and continue paying back your loan. This demonstrates stability and resources available to you.
Character-
This is exactly what it sounds like. This is your financial history displaying if you are responsible about paying off your other bills and loans. They judge your past on your past loyalty and obligations to other creditors.
Collateral-
This is another form of security. These are things that you are willing to provide your creditor to ensure they will be getting their money.. Things like bonds, stocks, savings accounts, cars, or real estate.
These four points are evaluated and graded when you apply for a new credit. It is best to score well in all four categories! Each of these can be improved upon to improve your grades and better your chances of higher credit limits or larger loans.
Information pulled from:
Notley, S. Credit solutions: Proven strategies to establish and re-establish your credit. The Manning Group
If you ever have questions, contact us - your expert consultants.
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Solutions Team
