Debt, Credit Scores, and Loan Applications

Lenders don't just look at credit scores. They also look at your debts.

When filling out a major credit application, the lender checks your FICO scores. Your scores aren’t the only factor that can affect your application. Your credit history, the amount of debt you have, and the nature of it are also important.


Too much credit card debt can make lenders wary of approving your loan.

What do lenders look for in these areas? In general terms, patterns of reliability, stable income, and good financial management. For example, carrying a high balance close to your credit card limit may indicate to a lender that you have a higher potential to run up debt.


This is associated with something industry professionals call “repayment risk”. In general, the metric used involves examining a borrower’s credit card limits and estimating the risk of the borrower defaulting on that credit card balance. The higher the balance, the greater the perceived risk is of the borrower going into default.


This is an important factor to keep in mind because it does not only directly correlate with your FICO scores-it’s also a separate calculation a lender will look at as part of your overall debt. If your credit card balances are too high, the lender may think twice about approving the loan.


Student loan debt can also make lenders wary, even if your loans are deferred.

Student loan debt is another area that is problematic for some borrowers. Recent changes in mortgage loan servicing requires lenders (especially for government-backed mortgage loan programs) to view student loan debt in a different way. Your deferred student loans may still be counted in your debt-to-income ratio by calculating a percentage of the total amount due as a projected monthly payment.


Borrowers who carry student loans AND higher credit card balances would be more vulnerable to having a loan application denied. This is why these balances and how you manage them can be crucial to your financial success in terms of getting approval on a major line of credit like a home or auto loan.


Having trouble managing your debts? Try credit counseling!

Borrowers who have trouble managing their credit card balances may wish to take the Federal Trade Commission’s ( advice and explore options for credit counseling and debt management classes to learn how to reduce this risk.



MSI NEW LOGOMSI Credit Solutions provides superior credit restoration and comprehensive consulting services that are reliable and affordable. For any questions or to schedule a free credit consultation, contact us at (866) 217-9841.

 *The information in this article has been provided strictly for educational purposes.


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