Credit Score isn’t the only thing that could make or break your ability to get a loan or line of credit. Many lenders – mortgage lenders, especially – will also calculate a potential borrower’s debt-to-income ratio to determine whether they’re suited to take on another monthly payment.
You can find your debt-to-income ratio through a simple calculation : Divide all monthly debt payments by gross monthly income and you have a ratio or percentage.
A debt-to-income ratio of 36% or less is generally good for homeowners, while 15% to 20% is good for renters. The lower the percentage, the better you look to lenders, because it indicates your debts make up a smaller portion of your earnings.
Outside of your credit score, your debt-to-income ratio is the most important number for mortgage lenders. This ratio measures the relationship between your monthly debt obligations and your gross monthly income.
As a general rule, lenders strongly prefer your total monthly debts including your estimated new mortgage payment equal no more than 43% of your gross monthly income. If your debt-to-income rises past this level, lenders won’t be as willing to lend you mortgage money. They’ll worry that you’re already overburdened with debt, and the addition of a monthly mortgage payment will only make your financial situation worse.
Aside from your debt amount and your track record of paying your bills, more lenders are adding employment history to the credit checking criteria mix. Creditors may want to review your job history as a means of estimating income stability. A good employment track record says, two or more years at the same company indicates you are stable professionally, and thus a good credit risk. But if you’re employment history is of the job-hopping variety that could be a cause of concern for lenders, who may either deny you credit outright, or approve your credit application, but at a higher interest rate that helps the lender compensate for the added risk. In case they ask, be prepared to provide a reasonable explanation.
Personal income is also a burgeoning factor in loan and credit approvals. Much like employment history, where stability is rewarded with credit approvals and lower interest rates, a steady income indicates to creditors that you have the financial means necessary to cover your debt payments. Any “breaks in the chain” in the form of little or no income, and creditors could view you as a higher credit risk, and place your credit application in jeopardy.
Lenders increasingly want assurance that you could continue making your loan or credit payments even if you’re incapacitated or laid off. That’s where cash flow comes into the picture. If you run into a financial emergency, creditors want to know if you have any financial assets, like stocks, bonds, money market accounts, or certificates of deposit that can be used in the short-term to cover your debt in the event of a financial setback. In short, the more liquid assets you have, the more likely you’ll make your debt payments.
To qualify for the lowest interest rates, make sure you have enough money in savings. You’ll need money to pay for your down payment, closing costs, and a certain number of months’ worth of property taxes, of course.
But lenders often require that you also have enough in savings to pay at least two months of your new mortgage payment, including whatever you’re paying each month for property taxes and insurance. Lenders want to see that you have savings in case you suffer a temporary reduction in your monthly income. This way, you’ll be able to use your savings to pay for at least a couple of months of mortgage payments.
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Credit Score – Myths
IBIL reports, generated on a monthly basis (as mandated by the RBI), help lenders evaluate and approve or reject loan applications, as the case may be. However, there are several myths associated with CIBIL which need to be busted.
What Credit Score do I need to get a Personal Loan?
The range of CIBIL Score is 300–900, usually Credit Score above 700 are considered to be good. But less than 700 score doesn’t mean you have a bad Score, it is an average Score. More importantly, you can get loans from many NBFCs and Banks with this score.
Free Credit Score
Credit Score is a three-digit number range from 300-900 that relates to how likely you are to repay debt. Banks and lenders use it to decide whether they’ll approve you for a credit card or loan. But that might be too late as the person’s loan application would have already been rejected and he would be left on to a loan path to rebuilding or improving his CIBIL score.
Credit Score Repair – Boost Your Credit Score FAST in 2021
Credit score is a three-digit numeric number found in the Credit Information Report and it plays an integral role in initiating the loan application process. The lower the score, the more trouble you may face. In case, you have bad credit history, it is necessary to follow certain measures to fix the issue.
Bad Credit Score – Side effects
The score is given based on your loan or credit card repayment track of at least 6 months to a year. Any score of 750 or above is considered a good one while a credit score below 600 is considered bad by lenders. When you have a good credit score, it brings a range of benefits such as lower interest rates, higher borrowing or credit limit, quick disbursal, etc.
How to raise my credit score towards 750
Bad Credit Score can be improved/ rebuild even without Credit Cards. Primarily you need to repair your credit history before you see your Credit Score improvement.
What Credit Score do I need to get a Personal Loan
You can get loans from many NBFCs and Banks with this score. But note that you can work towards improving your score above 700 .Your credit score plays a key role when you apply for a loan. The following ways will help you in understanding your Credit Score:-