While your credit score provides insight into where you stand relative to others within a score range, it does not tell you if you’ll be approved for a loan, or at what terms. Each lender makes that decision and will usually take your credit score into consideration when they decide whether or not to grant you credit.
So in this economic climate, have lenders changed what they consider to be a “good” credit score?
[Related: What is a good credit score?]
For the most part, the answer is yes. It’s not surprising that the majority of lenders will typically tighten credit criteria for loan approvals, and at the most favorable terms, when they see (or forecast) an increase in the number of their customers who aren’t paying as agreed. Given the U.S. economic conditions are the worst we’ve seen since the Great Depression, many lenders experienced substantial increases in losses over the past two years. As a result, they’ve revised their credit policies.
These revisions can come in different forms:
- Requesting additional information (on income and assets) from the applicant
- Conducting additional verification of information (time at employer, for example)
- Reviewing multiple credit reports
- Review of payment behavior on non-traditional accounts (cell phone payments, review of checking account status)
- Requiring a larger down payment on secured loans (auto, home)
- Raising the credit score cutoff required to be approved
Most lenders do not publically share the detailed credit criteria that a person would need to pass in order to be approved. Additionally, the credit requirements will likely be different for different types of credit (a mortgage loan vs. an automobile loan) and even for different features for the same type of credit (a platinum credit card vs. a standard credit card).
Generally speaking, the chance of getting an automatic approval with a FICO score in the mid 600s are far less likely in today’s credit environment as compared to the mid-2000s. From what I hear, many lenders today want to see credit scores in the 700s. So it’s more important than ever to check your score and credit report before you apply for credit—to increase your score, as well as your likelihood of being approved under today’s tighter credit requirements.
Image by clarkmaxwell, via Flickr