By knowing how a creditor will evaluate you, not only is the mystery removed from the process, more importantly you can take major steps toward improving your credit profile and increasing your chances of getting your credit approved. When you apply for credit by filling out an application, the form typically gives the creditor permission to retrieve your credit report from a credit bureau. Once this is done the creditor assesses your credit worthiness based on both objective and subjective criteria.
Many lending institutions will employ a short-term debt-to-income ratio where they calculate your present short-term debt payments and divide it by your total annual income. Generally creditors will not lend to you if your short-term debt is more than 20 percent of your annual income. Similarly, a potential creditor will add up all your monthly bills (not including rent/mortgage and utilities) and divide by your gross income. Here, creditors are looking for a ratio of under 35%. It is a good idea to look through your credit report and find the credit card accounts that you no longer want and cancel them.
Most lending institutions employ their own version of a credit worthiness scoring system where they assess your credit information. The number of years at your job tells creditors about your level of consistency, and the kind of work you do holds importance as well. Manual work is seen as being least favourable, then clerical work. Next preferred is whether you are self-employed, managerial, and most favoured is the almighty professional. This preference is based mainly on job stability.
The number and nature of the “blotches” on your credit history also send up red flags, the worst of course being bankruptcy. Creditors also look at the amount of credit you currently have. How much debt could you go into if you maxed out your present cards? Finally, creditors also look at whether you have a telephone in your own name, the length of time at your present address and whether you own your home.