What Your Credit Score Doesn't Tell You About Your Creditworthiness
NEW YORK ( MainStreet) When people think about getting credit, be it a mortgage or a new credit card, they often think in terms of their three-digit FICO score alone. In fact, there are a number of factors that impact your ability to get credit -- some of them not even on your credit report.
"Before 1971, your income did appear right on your credit report," says Randy Padawer, a consumer advocate with Lexington Law. "However, if you go to get a mortgage and your income won't support the loan, you're certainly not getting that financing."
So how much income is enough? Beverly Harzog, author of Confessions of a Credit Junkie, says that it's a highly subjective factor. "No one wants to go on record drawing a line in the sand, because there are so many factors."
One place where a line in the sand does get drawn is with no-limit credit cards. "Cards with no spending limit might be a little bit flexible, but they're still looking in a certain range." What this means in practice is that you're likely to receive a similar credit product, one with fewer benefits and a lower spending limit, rather than getting turned down entirely.
Harzog points out that the overall stability of your life will be a factor in whether or not you get approved for credit. Income is one factor is that, but there are others. "Your employment history is actually on your credit report," she says, "but it doesn't factor into your FICO score." Two or more years at the same job shows the stability in income and lifestyle that lenders are looking for. Another factor that might surprise people looking for their first mortgage? How long you've lived at your current address. "Living at your current address is another way to appear more stable to lenders," she says, adding that she's had the same address for over 20 years.
If you're new to the world of self-employment, get ready for the best kept secret among those who work for themselves: It's a lot harder to get any kind of credit, a mortgage especially, when you're self employed. "Prospective creditors are comforted by being able to dial up HR and get third-party validation of your employment status," says Padawer.
Harzog again stresses the importance of stability. "Have a professional website. Have professional business cards. Have an emergency fund in the bank to show that if you do have a bad month that everything isn't going to fall apart," she says.
Looking Good Off Your Credit Report
Particularly for people in the transitional areas of credit score, paying a little bit of attention to what you can do to appear more creditworthy is a personal finance goal that can make a big difference. Not only can it impact whether or not you get a loan, it can also affect your interest rates.