Beyond Credit Scores: 7 Factors That Affect a Loan Application

When it comes to good finances, credit scores get a lot of press. Based on a formula incorporating loan and repayment history, credit scores are often touted as the reason someone gets approved for a credit card, auto loan or mortgage — or denied one.

However, some financial experts say the role of credit scores may be overblown. “It is a very useful tool, but it’s just one tool,” says Kathleen Lindquist, a certified financial planner with San Diego Wealth Management. In addition to credit scores, lenders may look at everything from your housing history to your social media presence and credit decisions.

Mortgage and subprime borrowers may be subject to even greater scrutiny. That isn’t to say credit scores aren’t important, but their role may vary significantly depending on a lender’s three-digit number. “If your score is greater than 750, the decision is made primarily on your credit score,” says Rich Hyde, chief operation officer of Prestige Financial, which specializes in auto loans for buyers with subprime credit.

People with lower numbers may find lenders begin asking for more documentation. However, that isn’t necessarily a bad sign. “We’re in the business of loaning money,” Hyde says. “We’re looking for the good things.”

Mortgage lenders also tend to have more stringent requirements, Lindquist says. Beyond a credit score, they also look for details regarding income and assets to determine whether a borrower will have the means to pay off a large loan with a long term.

7 Other Factors Lenders May Consider

All lenders have their own criteria, but here are seven commonly considered factors that can play a role in a credit decision.

1. Proof of income. It’s not enough to simply state your income. Some lenders want to see proof, either in the form of pay stubs, bank statements or even old tax forms.

2. Investment statements. Some lenders may also want to see 401(k) or IRA statements, “particularly for those who are retired and don’t have an income,” says Mikel Van Cleve, director of personal finance advice for USAA Bank.

3. Employment history. Hyde says subprime lenders often look for a stable employment history when weighing the likelihood of a borrower being able to pay back a loan.

4. Housing history. As with employment, lenders are looking for stability when it comes to housing. Frequent moves could indicate money management problems or increase a lender’s chances of not being able to track down a borrower who defaults on a loan.

5. Debt-to-income ratio. Sometimes broken down as a payment-to-income ratio, this factor calculates debt as a percentage of your income. “It’s a good idea to keep that debt-to-income ratio below 36 percent,” Van Cleve says. However, a higher ratio may not automatically disqualify someone from a loan.

6. Recent payment history. If you have past bad credit, a lender may consider when that occurred. Missed payments from three years ago may not be a concern, but missed payments from last month could sink someone’s chances for a loan.

7. Social media. “Data companies are continuing to look for new ways to help lenders,” Van Cleve says. That includes surveying social media sites for signs a potential borrower may be irresponsible with their money. Van Cleve is quick to note this is a new strategy of evaluating applicants and not one used by USAA Bank.

Surprisingly, a bankruptcy may not mean you will automatically be denied a loan. “A recent bankruptcy means you don’t have other debt we have to compete with,” Hyde says.

Don’t neglect your credit score. While checking your credit score every day isn’t necessary, borrowers should still be aware of their number. By paying on time and keeping credit card balances low, you can boost your score and minimize the need for your entire financial life to go under a microscope.

More from U.S. News

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5 Things to Consider Doing When Your Credit Score Hits 740

12 Habits to Help You Take Control of Your Credit

Beyond Credit Scores: 7 Factors That Affect a Loan Application originally appeared on

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