WHAT ARE THE TOP 10 FACTORS BANKS USE TO
DETERMINE YOUR LOAN?
Victor Fernandez (ex-banker / CEO of VictorFunding.com)
1 CREDIT SCORES
Banks firstly look at your credit scores. Loan
Officers tend to look at this firstly as in a nutshell
the loan officer can typically know if you are
credit worthy. Typically, this is the norm:
3 DEBT UTILIZATION RATIO (DTI)
This is the ratio of your revolving credit (credit
cards or line of credit). Banks want to see that
you have this ratio at least under 50% minimum
but preferably under 30%. (10% or less is ideal.)
Excellent Credit: 750-850
Good Credit: 700-749
4 CREDIT HISTORY
Banks tend to look at your past payment history.
This counts for 35% of your credit score.
Loan officers are trained to look on your credit
report for missed payments, late payments,
collections, charge offs etc. The more they see
these the less likely you are to get approved.
Fair Credit: 650-699
Banks also check how recent your late payment
was. Was it 6 months ago (meaning you’re
having trouble paying payments lately) or was it
8 years ago. The older the better.
Poor Credit: 600-649
Bad Credit: below 600
Of course, they will look more into the scores
but this is how to know whether your score is
“fundable”.
Being a loan officer once, we would typically
know anything below 700 doesn’t have much of
a chance of getting approved. In the 680 range,
it’s about a 50/50 chance. Above 700 you’re
likely to get approved depending on the factors
below.
2 INQUIRIES
You can have perfect 800+ credit but if you have
tons of inquiries, you simply won’t qualify. Banks
tend to all have their own rules on how much is
“okay” but most of them draw the line at 6 inquiries in the last 6 months.
Anything above, most banks will automatically
deny you. The fewer you have, the higher of a
chance you will get approved.
Also, if you have one late payment, and have 10
credit cards for example, not a big deal. If you
have one late payment and only have 3 credit
cards, than yes it’s a big deal. One-third of your
credit is late, and banks will not approve you.
Here’s an example, Say you have a credit card
with a limit of $10,000. If you owe $5000 on that
card, your debt utilization is 50%. If you owe
$3000 than it’s 30%. Lastly if you owe $1000, it’s
10%.
If you have a card maxed out, don’t sweat,
doesn’t mean you still can’t get approved. It
depends how many cards you have.
If you have 10 credit cards and one or two of
them are maxed out, it’s not a big deal. But if you
only have 2 credit cards only and both of them
are maxed out than yes you probably won’t get
approved if you apply for a loan as 100% of your
credit cards are maxed out.
5 PUBLIC RECORDS
7 CREDIT/COLLATERAL
these are bankruptcies, tax liens, judgments,
etc. People tend to think just because they have
a public record such as these on their credit
they’ll automatically get denied.
Are you going to put collateral down? or is your credit your collateral?
It actually depends on how old the public record
is on the credit. If the public record is 5 years or
older, than it’s completely fine, but if it’s 5 years
or less than you probably won’t get approved.
A high credit score is considered collateral in a way because it show’s your credit worthiness and makes
the loan officer feel comfortable.
Quick Example: I got a client funding with 750
credit who had a bankruptcy on her credit 6
years ago. I ended up getting her over $130,000
in loans and credit cards. So again, just check
the age of the public record.
Loan officers look at your employment of course. They look at how long you’ve worked at your work
place, your monthly pay, if your position matches your pay (entry level salesman is not likely to make
$80,000 but a general manager is) The least risky for a loan officer is someone who has a job and works
there for 10 years + and get’s a stead pay check every 2 weeks.
6 CAPACITY
The lender wants to ensure that you can repay
the loan. Your ability to do so is known as capacity. When you apply for a loan, you authorize the
lender to run your credit history. The lender
wants to evaluate two things: your history of
repayment with others and the amount of debt
you currently carry. The lender reviews your
income and calculates your debt service coverage ratio.
The acceptable ratio varies by situation, but
typically, a bank wants to see a minimum debt
service coverage ratio of 1.20 times. This means
for every dollar of debt you carry, you bring in
one dollar and twenty cents in income to service
the debt.
Banks try to always push for collateral as it’s a much safer loan for them because you’re giving them
something of value in return if you don’t pay. It’s better to get a loan based on your credit.
8 EMPLOYMENT
Risky employment to a loan officer would be if someone is a real estate agent and their income fluctuates every month. Another reason that a loan officer could find risky would be is if the person applying
has only worked at their job for only a month. (they lack steady pay income since they’re job is new.)
The loan officer would rather give the loan to the person working at their job for 10 years as opposed to
the brand new one only working for a month.
9 ADDRESSES
yes believe it or not, loan officers check to see if your past addresses make sense on your credit report.
What I mean is most credit reports shows the address history of each credit bureau, Experian, Equifax,
and Transunion.
Sometimes people applying for a loan have addresses different on each of their credit bureaus (sometimes they’re just not updated), we simply have to send a request to the credit bureau to update the
address to your current one.
If your addresses are updated, it increases your chance of getting approved for the loan. I know silly but
the more addresses there are, the higher chance something can be fraudulent.
10 PURPOSE OF LOAN
lastly, banks look at the purpose of your loan.
What do you need the loan for business or home
improvement?
You’ll be surprised what people enter on their
application sometimes. For example, sometimes
people would put they need the loan for “home
improvement” but they’re renting their living
space.
Why would they want to improve someone else’s
property, the reason for the loan does not make
sense, so we would automatically deny. Just
make sure your reason for your loan makes
sense and does not seem risky.
INTERESTED IN LEARNING MORE TO
SEE IF YOU CAN GET
$20,000 to $400,000?
(only need 700+ credit to qualify)
Call (915) 257-8935
Email us at [email protected]
We love to help entrepreneurs, business owners, real estate investors or anyone who needs a
significant amount of money.
Victor Fernandez VictorFunding.com
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