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What lenders consider other than credit scores

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Your credit score is important when applying for a loan, but it is not the only thing lenders consider when deciding whether or not to approve your loan application.

Lenders may provide borrowers with an estimate of what interest rate you may be eligible for with prequalification. While this method can give you an idea of where you stand, lenders often consider more than credit score when approving loans. These factors may affect your overall loan rates.

Income and employment history

Employment and income verification are important. The lender wants to know that you have money coming in to cover the loan payments. With online lending, there’s also a need to protect the lender (and the borrower) from identity theft.

Income verification is generally a matter of providing pay stubs or a tax return.  If you’re self-employed, income verification may include providing the lender with copies of your past years’ income tax returns.

Banking relationships

How much money you have in checking or savings can be a point of interest as well. A lender may want to review your bank statements to check on your cash flow. Having a solid existing relationship with a bank in your area could improve your chances of approval, especially if you borrow from that bank. Lenders also consider mortgages and other active loans during the approval process.

If you have a lot of built-up savings, a loan secured by a certificate of deposit could be an alternative to an unsecured personal loan. A certificate of deposit is a savings account that grows in value over a set amount of time during which you cannot access those funds. Loans can be secured with these accounts as collateral.

Lenders’ credit models

Peer-to-peer (P2P) lenders put together their own credit models for loan approvals. The Federal Trade Commission (FTC) explains the standards these models must follow in a consumer publication: “Under the Equal Credit Opportunity Act, a creditor’s scoring system may not use certain characteristics such as race, sex, marital status, national origin or religion as factors.”

The law allows creditors to use age, but any credit scoring system that includes age must give equal treatment to applicants who are elderly.

Risk-based pricing

Risk-based pricing means the worse your credit is, the higher the interest rate on your loan. You have to do the cost-benefit analysis to decide if you’re willing to pay the interest rate to borrow the money over the loan term.


Some types of loans, such as title loans and home equity loans require collateral. In other words, you are putting your property on the line. If you do not pay your loan, the lender can take what you used as collateral.

If you choose a loan with collateral, also known as a secured loan, your interest rates will likely be lower than with other loans and credit cards. The lender is at less risk of losing their money because of the collateral.

Joint borrowers

Some lenders also people to have cosigners or joint borrowers. If you have poor credit but can sign the loan with someone in a better financial situation, the lender may be more willing to give a favorable interest rate.

Not all lenders offer this option. If you have trouble finding an online personal loan option that works for you, consider asking a local bank or credit union. Local financial institutions often have a few more options when it comes to borrowing.

The bottom line

Your chance of being approved for a loan depends on several factors, and it is important to consider the full scope of your financial situation before deciding on a lender or applying. If you don’t have an ideal credit score or history, you may be able to get a loan from a lender that considers other factors

If you are concerned about your credit score, don’t jump into easy-looking options like a payday loan to get the money you need. Look into lenders that offer bad credit loans with fairly reasonable rates and flexible eligibility requirements. Consider lenders that look at other factors such as your prior relationship with them or other factors. You likely have more options than you realize.

Written by
Raija Haughn
Raija Haughn is an associate writer for specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term.
Edited by
Loans Editor, Former Insurance Editor