Creditworthiness: Do You Have It?

We all know that a solid credit score, a strong track record of consistent on-time payments and a clean credit history are all necessary to get a low-interest loan or approved for a credit card, but other not-so-obvious factors also play a role.

Lenders also consider your custom credit score. Although it takes your credit score into account, a custom score is generally used by various lenders to more closely evaluate risk factors relevant to what you are to fund with the line of credit. Lenders who use custom scores tend to dig a little deeper with due their due diligence before arriving at a decision.

“Not every creditor is required to report your credit,” according to Bruce McClary, an NFCC consumer certified educator for Clear Point, a non-profit credit counselor headquartered in Richmond, Va.

For that reason, McClary says many major lenders use their own internal credit scoring systems to help make lending decisions. “Each one is different from the others.” Consumers who have a good credit score can get rejected by the lender because of their length of time at a job or how frequently they have moved.

Sometimes in developing a custom score, a prospective landlord will be more focused on how consistently you paid your rent or mortgage on time. On the other hand, if you’re buying a used car, a dealer may factor in your traditional credit report more heavily.

“These scores are developed by lenders internally to predict the future behavior of their customers,” says Saurabh Sharma, president and CEO of Indus Insights, an analytical consulting firm with extensive management experience in credit policy.

“Remember the questions that you fill in on the application form when you are applying for a loan or a credit card? Most of those responses also go into creating a custom score for you,” he pointed out. Whether you are salaried or self-employed can be taken into consideration, or if you have a checking account.

In the end though, the goal is the same: Creditors want to make sure they can trust borrowers to make payments.  So follow a few basic steps, McClary advises: “Pay your bills on time. Make sure you have steady income. Don’t rack up too much debt.”

What makes you appealing to one makes you appealing to all, noted Karen Carlson, director of education at InCharge Debt Solutions, a non-profit credit counseling agency in Orlando, Fla. If your credit has been damaged, Carlson suggests ensuring that fresh information about you is reported to credit agencies.

Consider getting a line of credit at your bank or applying for a credit card and make sure you pay it off regularly in order to rebuild your credit. The strategies for getting a good custom credit score are similar to those for getting a good credit score.

“If you can’t pay off the entire balance, at least pay the minimum due amount,” Sharma says. Stay away from maxing out your credit cards, don’t apply for too many loans at the same time, and remember that a lender who already has a relationship with you might be more willing to overlook some blemishes on your credit record.