While your income directly affects the total amount of money you’ll be able to borrow from the bank— it is not the only thing that impacts the types of loans that are available to you. That said, it is important to understand the role the amount of money you make plays when it comes to getting approved for an auto or home loan. Here’s what you can do to improve your chances of coming out on top:
Getting Personal
Unfortunately, you’ll have to reveal personal information like your salary and total income when applying for any type of loan. That’s because banks want to know that you make enough money to pay back the loan. The more money you make, the higher your chances of securing a larger loan. As a result, you’ll want to show all of your income streams when applying for a loan—don’t be secretive.
In addition to analyzing certain income criteria, banks look at the following key factors related to your debt:
- Borrowing History. Banks will evaluate your “reputation” as a borrower based on your credit history. In part, the way you handled the money you’ve borrowed in the past (even if it was a small loan) indicates whether or not you can be responsible when it comes to paying back new loans.
- Payment History. This is the other part of your borrower’s reputation. If you have a long history of late payments or missed payments, banks may consider you unable to pay back a loan.
If you have a stellar borrower’s reputation, have paid back loans on time, have not missed payments, and have a high income, you can expect to get a larger loan. If your credit history falls short when it comes to any of these factors, banks will be reticent to loan you large amounts of money – fearing that the monthly payment will be too much for you to handle. Instead, they may limit the amount of your loan – or worse, saddle you with a high interest rate.
Be in the Know
Many banks will use your FICO score to assess your viability. The score assesses these factors:
- Payment history (35%)
- Amount of loans owed (30%)
- Length of credit (15%)
- New credit (10%)
- Type of credit (10%)
If you’re having a hard time understanding your income to debt ratio, your credit score or how to improve your history as a borrower, it’s time to talk to a professional. The experts at BrightPath Mortgage are happy to help. Just give us a call today!
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