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Credit scores and loans

Leverage/loans are the key to building a successful real estate business.  Credit scores are becoming more and more of a factor on who is approved for loans and or denied.

All serious investors must understand how to win at the lending game. A large part of that is understanding and managing your credit score.

Better scores equal better loans.  Better loans help create wealth and income faster.


How Your Credit Score Impacts Loan Approval

Lenders use your credit score when deciding if and how they offer you credit, such as mortgage, car loan or a credit card. Your score also affects terms and rates associated with these loans.

Your payment history is the cornerstone of your credit score, but other elements also play a part. These could include:

Your credit score is a number.

Lenders use your credit score to assess your risk as a borrower, using data reported to credit bureaus such as Equifax(r), Experian(r), and TransUnion(r).

Your credit score can have an immense impact on your life. It can determine whether a lender approves of an application for a mortgage.

Your credit score takes into account how you’ve paid past bills and the debt that’s currently outstanding, along with your mix of accounts (credit cards, retail accounts, installment loans (car or student loans) and finance company accounts). Lenders also look at how long it has been used; generally speaking it should remain under 30%.

Your credit score is a factor.

Many individuals don’t realize how important their credit score is in loan approval decisions. Lenders use it to assess whether someone should qualify for mortgage, business loans as well as determine interest rates that borrowers will pay on these loans.

One of the key factors affecting one’s credit score includes length of history, debt-to-credit ratio, payment history and types of accounts held. An equally significant element is how long since any negative event such as missed payments or bankruptcy occurred. Either can have an enormously detrimental effect on one’s score.

Lenders prefer to see a mix of retail, finance company and installment loans in your credit profile. Too many new accounts may raise red flags.

Your credit score is a red flag.

Lenders use credit scores to gauge whether or not someone will repay what they borrow. A higher score demonstrates responsible financial behavior.  Higher scores will help qualify an applicant for better terms on loans.

Your credit score is determined by many factors, including payment history, amounts owed, length of credit history, new accounts opened and mix. One keyway you can improve your score is paying debts on time: this component accounts for 35% of FICO scores and 30% of VantageScores.

Excessive new account activity can also lower a credit score. This factor is measured by the total number of hard inquiries on your report; these could include applications for new credit as well as inquiries made by lenders to pre-qualify you for loans or credit cards.

Your credit score is a good thing.

Your credit score demonstrates your reliability as a borrower and determines the likelihood that a lender will approve of you for a loan. Furthermore, it affects interest rates you will pay, potentially saving thousands over the course of your loan’s lifespan.

FICO or VantageScore scores are calculated based on information found in your credit reports. This information comes from the three major bureaus, which contain payment history, utilization rates and age information of accounts.

Setting and making regular on-time payments are two effective strategies for increasing your scores, along with keeping revolving balances to an absolute minimum. Lenders tend to prefer when their borrowers use no more than 30 percent of available revolving credit available.  Having multiple types of loans like mortgages, auto loans, and credit cards may also boost your score. Keep in mind that your score may change with new information appearing in your report over time.


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How Your Credit Score Impacts Loan Approval. Credit usage loan.

Credit scores and loans


Utilization Rate Affects Your Credit Score

When you apply for a loan, the lender will look at your credit report to assess your creditworthiness. One key metric lenders use is your revolving debt utilization rate, or the percentage of your available credit you’re using. A high revolving utilization ratio can make it harder to get approved for loans. Knowing how your revolving utilization rate impacts your credit score and taking preventative steps to keep it low can help you improve your chances of getting the loan approval you want.

What is a revolving debt utilization rate?

A revolving debt utilization rate is the amount of debt you currently owe on revolving credit accounts (such as credit cards) divided by your total credit limit on those accounts. It’s calculated by adding up the outstanding balances of your revolving credit, like credit cards and home equity lines of credit, and then subtracting the respective credit limits from those totals to find the debt-to-credit ratio. You can calculate this ratio by tallying up the outstanding balances on all your revolving credit and then dividing the result by the respective credit limit to find your utilization percentage.

Your credit utilization rate is used to predict your credit risk and has a significant impact on your FICO credit scores, making it the second-most important factor behind only your payment history in the scoring model. The higher your revolving utilization, the more likely you are to have difficulty repaying what you borrow. For example, if you have a credit card with a balance of $2,000 and a credit limit of $10,000, your utilization rate is 20%.

However, it’s important to remember that revolving debt utilization rates only include revolving credit accounts such as credit cards and home equity lines of credit; they don’t consider other types of debt, like installment loans, which have a set repayment schedule. For this reason, credit card balances tend to have a greater impact on your credit scores than mortgage and auto loans, which are reported as installment debt.

What is a good revolving debt utilization rate?

Lenders typically prefer to see that borrowers aren’t using more than 30% of their revolving credit limit. Carrying too much debt could indicate you’re having trouble repaying what you’ve borrowed or may be struggling financially.

In addition, many lenders have their own guidelines for what is considered a “good” revolving debt utilization rate. Some lenders will decline applications for credit or will only approve applicants with revolving debt utilization rates below certain thresholds.

Keeping your revolving credit utilization low is a great way to improve your credit score, and it can also save you money on interest payments. To lower your utilization rate, make sure you pay off your credit card balances each month, and try to keep your balances as low as possible. If you have trouble paying off your balances each month, call your credit card company to see if they can give you more time to pay your bill or set up automatic payments.


Find out how a loan can raise your score in 30 days or less


Utilization Rate Affects Your Credit Score.

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