How do Lenders Decide if You're Creditworthy?

Don't just wait for an answer. Influence the outcome


Be a credit whiz

If you’ve ever wanted to get a credit card or apply for a loan, you already know that having good credit is really important. And let’s face it, lending decisions are quite complex and involve many different factors and scoring models.

So, what are credit scoring models? They are formulas that compile information about your past credit behaviors, and then use it to produce an overall credit score, which can be used by lenders to help determine the potential risk of extending credit to you, the applicant. In fact, there are over 60 credit scoring models that generate scores by collecting data from at least one of the three major credit reporting bureaus — Experian, TransUnion and Equifax — which means there are hundreds of possible credit score variations for a single individual. Whoa, that’s a lot of numbers.

Just what are lenders looking for?

When lenders make their lending decisions, they’ll check to see if you’re a financial risk. And by financial risk, we mean if they give you a loan, issue you a credit card, or supply goods or services, what’s the likelihood you can afford to pay them back — and will you?

Credit scores and scoring models were designed to tell lenders and creditors about your money habits and credit history…like whether you’re a good contender for a loan, and then to determine what interest rate you’ll pay. There are so many different scoring models, and therefore scores, that can be used by a lender — it’s practically impossible to predict which one they’ll choose.

It’s important to note that there isn’t any one credit scoring model that’s exclusively and consistently used throughout the entire consumer and small business marketplace. So, there’s “no one score to rule them all” and anytime you check “your score” from various sources, you should recognize that it may not be the exact same score lenders obtain from the models they decide to use.1 In fact, lenders can pull and receive credit reports and scores that are tailored to the type of financing you’re requesting (e.g., auto loans, mortgages, installment loans). Sometimes lenders will even create their own proprietary models to make decisions.

So, what matters most is credit health

No matter what credit scoring model lenders use, listed below are some of the most important factors considered in lending decisions:

  • On-time payments: Paying your bills on time shows lenders and creditors that you’re reliable — and you’ll likely pay them back too

  • Average age of open accounts: The age of your open credit accounts — older is better — give lenders a glimpse of your track record and how well you handle credit

  • Credit utilization: It’s the total amount owed divided by the total available credit — less is more — ideally, it should be below 30%, although using some credit and paying it off monthly may be better than using none at all

  • The types of credit you have: Whether it’s credit cards, a mortgage, an auto loan or a store account, having a mix of different types of credit is good for your score

  • How often you apply for credit: If you apply for credit often, it could be a red flag to lenders and creditors since they might think you’re financially strapped for cash 2

Keep in mind, while a score is just a number, the factors that go into that number are really what matters. If you keep your focus on the key components of your credit health listed above, you won’t have to stress over your score because it’ll already be the kind of number lenders would hope to see!


1 No single credit scoring model represents the marketplace: https://thescore.vantagescore.com/article/313/no-single-credit-scoring-model-represents-marketplace 2 A closer look at your credit score: https://www.capitalone.com/credit-cards/blog/credit-infographic/ Unless noted otherwise in this post, Capital One is not affiliated with, nor is it endorsed by, any of the companies mentioned. All trademarks and other intellectual property used or displayed are the ownership of their respective owners. This article is © 2017 Capital One.