How Your Credit is Evaluated

In the United States , a country that relies heavily on credit, it is imperative to be in good standing with the creditors and lenders. People in America are groomed to be credit conscious and responsible since birth, but often times lack of willpower and responsiveness has a negative impact on consumers. How can you avoid the pitfalls and establish and maintain a good credit rating? We examine what creditors look at when analyzing our credit standing.

Lenders look at three things when they evaluate a potential borrower's credit:

• Willingness to pay
• Ability to pay
• Your Assets

Willingness to Pay

A borrower's willingness to pay is demonstrated by their past credit discipline. Have you paid your credit card bills on time? Have you been late on mortgage payments? Have you missed payments altogether? These actions all demonstrate perhaps the most vital aspect of a person's credit rating. If you have always been on time with credit payments, you have demonstrated the discipline that is the most sought after characteristic of a responsible borrower.

Ability to Pay

The ability to pay back credit comes into play when taking into consideration the amount of the loan. Even if you have always been on time with small credit card payments, it will be difficult to take out a large mortgage if you do not have a well paying job. The ability to pay looks at a borrower's job and income. If you have a minimum wage paying job, even with impeccable past performance on credit card payments, it will be a stretch to take out a six figure loan.

Assets

The borrower's assets include their home, property, their car, etc. These assets are evaluated in order to determine whether a borrower will have the collateral necessary to cover a loan in case of default. If you own a home and property, a lender will be much more willing to extend you a large loan, knowing that you have collateral to cover your debt.

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