How your credit impacts the outcome of your loan…
In today’s day and age, just about everyone knows about credit. From cars loans to mortgages to boat loans and even insurance premiums, credit plays a role. It is generally understood that with higher credit scores come more competitive terms. However, your score is not the only variable considered. Lenders are looking at your entire credit profile when they evaluate your application when considering you for a loan. The main things being evaluated are score, payment history, loan types, and loan balances. Each lender assigns a different weight to these variables, impacting the outcome of their decision and the terms they offer.
One of the most common questions I am asked first is “What is a good credit score?” followed up with “What does my score need to be?”… Credit score is measured on a scale in it is relative to what you think is “good”. As such, there is no right answer to that question. However, in order to qualify for a loan for one of your tools/toys, 620 is about the minimum score that any lender will entertain. The most competitive and lowest rates are reserved for buyers that have scores north of 800. Fair and average rates are based on average scores in the low to mid 700s.
Next, let's discuss payment history. This is a pretty easy topic to cover. Lenders want to ensure that they are going to be paid back on time when they fund a loan request. The best way they can reference your future performance is by looking at your past. There are 4 ways this is reported to the credit bureaus. Either it is on time, 30-60 days late, 60-90 days late, or 90+ days late. Most of the time a single 30-day late payment can be easily overcome. If there are multiple 30-day late payments or even 60/90 day late payments recorded, they might be able to get past that with a good explanation of why they happened.
Finally, lenders are concerned with your loan balances and types. A diverse profile with comparable limits to what you are trying to borrow is the best scenario. They want to ensure that you have carried similar loans on homes, cars, and other tools/toys, prior to funding a request for a new tool/toy. Also playing into this is credit card debt. If you are close to your limit, it might appear as though you may be spending outside of your means to repay. So be sure to always keep a lower balance on your credit cards, or pay them down several months prior to applying for a recreation loan.
Understanding there is not a one size fits all answer, this was written with the idea of conveying a set of general guidelines. Just because you check all of these boxes, does not necessarily mean you qualify for a loan. As I say that, the inverse is also true… Just because you don’t meet all of these criteria, does not mean you won’t qualify for a loan. There are many nuisances that go into this, which is why you should utilize a broker or industry professional to help guide you through this process.
