Your credit score is not the sole factor banks consider when lending you money. They also look at your income and your debt-to-income ratio (DIT). The ratio is calculated by dividing your total debts by your total assets or by dividing all your monthly debt payments by your gross monthly income.
Imagine you have a 700 credit score and a $4500 monthly expense with a monthly income of $5,500. You might assume that your high credit score would guarantee a higher approval rate with a fair interest rate. However, while the bank may consider your credit score, it will also use your debt ratio and income to determine your interest rate. This means that even with a high credit score, a bank could either turn you down or approve you at a higher interest rate than others with lower scores but a better debt ratio.
There is no such thing as poor, good, or excellent credit, and banks use various criteria to make borrowing decisions. While a credit score alone may not be enough to get approved for a credit card, it might be good for purchasing a home or excellent for buying a vehicle. Additionally, what one bank considers an excellent score might only be deemed suitable by another. A bank may deny you with a 540 credit score, while another may approve you with that same score
When purchasing a vehicle, interest rates are influenced by its make, year, and mileage. New cars generally have lower interest rates, while older ones may have higher rates. For instance, a 2000 Mazda with 10,000 miles might have a higher interest rate than a 2010 Mazda with the same mileage.
In summary, while your credit score plays a role in determining your approval rate, banks combine it with your debt ratio to set the interest rate.
Bobb Rousseau
Business Coach
Policy Consultant