Beyond credit scores: factors that affect a loan application

U.S. News Report: When it comes to good finances, credit scores get a lot of press. Based on a formula incorporating loan and repayment history, credit scores are often touted as the reason someone gets approved for a credit card, auto loan or mortgage – or denied one.

However, some financial experts say the role of credit scores may be overblown.

“It is a very useful tool, but it’s just one tool,” says Kathleen Lindquist, a certified financial planner with San Diego Wealth Management. In addition to credit scores, lenders may look at everything from your housing history to your social media presence and credit decisions.

Mortgage and subprime borrowers may be subject to even greater scrutiny. That isn’t to say credit scores aren’t important, but their role may vary significantly depending on a lender’s three-digit number. “If your score is greater than 750, the decision is made primarily on your credit score,” says Rich Hyde, chief operation officer of Prestige Financial, which specializes in auto loans for buyers with subprime credit.

People with lower numbers may find lenders begin asking for more documentation. However, that isn’t necessarily a bad sign. “We’re in the business of loaning money,” Hyde says. “We’re looking for the good things.”

Mortgage lenders also tend to have more stringent requirements, Lindquist says. Beyond a credit score, they also look for details regarding income and assets to determine whether a borrower will have the means to pay off a large loan with a long term.

All lenders have their own criteria, but commonly considered factors that can play a role in a credit decision include proof of income, investment statements, employment history, housing history, debt-to-income ratio and recent payment history.