For many people, a new year brings new resolve to set finances on firm footing, and for some, a consumer loan like the BBVA Compass Express Personal Loan may be the ticket to consolidating debt and lowering high interest rates.
For those people, being approved for a consumer loan is the hurdle that can make the difference between success and failure. That’s why having a complete understanding of the approval process is the best way to be assured a positive outcome.
Understanding the factors that affect these scores will ensure that consumers are well positioned.
When it comes to determining whether to accept or decline a credit application, many lenders use a proprietary risk-based scoring model. While the specific mix of factors that go into the model may vary, the ingredients are similar, with one of those main ingredients being consumer scores developed by third parties, such as FICO or Vantage. Understanding the factors that affect these scores will ensure that consumers are well positioned for approval, no matter the mix being used in the lender’s scoring model.
Consumer credit scores are used by lenders to determine a borrower’s credit risk, or how likely a borrower is to pay back a loan on time. The scores play a big role in determining the interest rate and credit limit consumers may receive on their loans. Typically, higher consumer credit scores mean better interest rates and credit terms.
Consumer credit scores are calculated based on the content of a consumer’s credit report, which credit bureaus create based on current and past credit activity reported to them by creditors, like loan paying and credit account status. These reports are summarized into credit scores. The factors included in credit reports that go in to credit scores include:
- Bankruptcies, collections, missed payments and foreclosures
- Credit used versus credit available
- Length of credit history
- New credit
- Credit mix – or types of loans a consumer has
If you’re looking to improve your chances to be approved for new credit, below are some tips:
- Pay your bills on time.
- Don’t exhaust your borrowing capacity. Keep your utilization of your lines of credit reasonable.
- Don’t overleverage yourself. Instead, keep a good balance of income, non-financial expenses and financial expenses.
- Control your impulses. You might find that you’re pre-qualified for a loan, but consider whether you actually need it.
- Avoid hard pulls on your credit by applying for loans you may not need. These pulls negatively affect your credit score. At BBVA Compass, customers can avoid this by going to a local branch to see if they are pre-qualified for the Express Personal Loan. The bank will soft-pull customers’ credit, which will determine pre-qualification without damaging credit scores.
- Use a service like Credit Karma to stay informed on your personal credit score.