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Card Category: All Business Charge Foreign Poor Credit Pre-Paid Regular Reward - Airline Reward - Auto Reward - Cash Reward - Finance Reward - Gas Reward - Hotel Reward - Retail Reward - Sports Reward - Travel Reward - Other All Reward Cards Secured Student Intro APR: All 0.0% 1.9% or Less 2.9% or Less 3.9% or Less 4.9% or Less 5.9% or Less 6.9% or Less 7.9% or Less 8.9% or Less 9.9% or Less Time Period: All 3 Months or More 4 Months or More 5 Months or More 6 Months or More 7 Months or More 8 Months or More 9 Months or More APR (Purch.): All Less Than 6% Less Than 7% Less Than 8% Less Than 9% Less Than 10% Less Than 11% Less Than 12% Less Than 13% Less Than 14% Less Than 15% Less Than 16% Less Than 17% Less Than 18% Less Than 19% Less Than 20% Less Than 21% Less Than 22% Less Than 23% Less Than 24% Less Than 25% Annual Fee: All $0 $10 or Less $20 or Less $30 or Less $40 or Less $50 or Less $60 or Less $70 or Less $80 or Less $90 or Less $100 or Less $110 or Less $120 or Less $130 or Less $140 or Less $150 or Less

Tuesday, November 18

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How Do Creditors Evaluate You?

Banks and credit card issuers consider a variety of factors when you request an extension of credit. By far, the most important factor is the Debt to Income Ratio (DIR).

Debt, in this situation has a special meaning. It includes all sources of potential credit, debt and liabilities that are available to you. So for example if you have a credit card with a $2,000 credit limit but usually carry only a $100 balance month-to-month, creditors will use the $2,000 figure as your debt on that credit card account, not your actual debt of $100.

Having too many credit cards that you don't use can negatively affect your creditworthiness. Such items as outstanding mortgage balances and school loans are also included in your Debt calculations. Contrary to popular belief, Stafford loans and other government subsidized loans are included in your Debt calculations.

In evaluating credit worthiness of a consumer, banks and other creditors calculate your Income by including all sources of income, including salaries, bonuses, rental income (if you are a landlord for instance) and benefits you receive from the government. It is thus advantageous to provide your creditors with verifiable information on all your income sources. As an aside, income obtained by illegal means cannot be considered by creditors in calculations of your Income.

High Debt to Income Ratio is a warning sign to creditors, and is a likely reason that your request for extension of credit will be rejected, be it credit card, mortgage or car loan. From the viewpoint of banks, an optimal DIR is about 20-35%. Surprisingly enough, a very low DIR may also cause your application for credit to be rejected. In this situation, your past credit history becomes very important. What the banks want to know is why do you have so little credit? Is it because you are a bad credit risk or is it that you did not request credit before.

Late Payments

In evaluating your request for credit, creditors use your credit profile (also known as credit history). Aside from the items that were discussed above, creditors pay great attention to whether you have had a history of late payments. While it may seem to be quite insignificant if you are late with your payments, creditors have no way of knowing whether it is a result of oversight or financial inability to pay, and by default they make assumption that it is the latter.

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