When you apply for a loan, mortgage, or credit card, lenders will check your bank statements to determine whether you’re a good candidate for borrowing money. Your bank statements provide lenders with a detailed view of your financial habits and help them assess your creditworthiness. In this article, we’ll explore what lenders look for on bank statements and how you can improve your chances of getting approved for credit.
1. Income
One of the most critical factors that lenders consider is your income. They want to see that you have a stable source of income and that it’s sufficient to cover your expenses and repay the loan. Lenders will look at your bank statements to verify your income and check for any irregularities or fluctuations. If you’re self-employed, they may want to see your tax returns to confirm your income.
2. Expenses
Lenders will also analyze your bank statements to see how much you’re spending each month. They’ll look for any recurring expenses such as rent, utilities, and car payments. They’ll also check for discretionary expenses such as eating out, shopping, and entertainment. If your expenses are high compared to your income, it may raise red flags and make it harder to get approved for credit.
3. Debts
Lenders will want to know how much debt you have and how you’re managing it. They’ll look for any outstanding loans, credit card balances, and other liabilities. They’ll also check for any missed or late payments and determine your debt-to-income ratio. If you have too much debt or a history of delinquencies, it may signal that you’re a higher risk borrower.
4. Savings
Lenders prefer borrowers who have a cushion of savings to fall back on in case of emergencies. They’ll scrutinize your bank statements to see if you have any savings or investment accounts. They’ll also look for any irregular deposits or withdrawals that may indicate you’re using your savings to cover your expenses or repay debt.
5. Overdrafts
Lenders frown upon overdrafts and may view them as a sign of financial mismanagement. They’ll check your bank statements for any overdraft fees or instances of overdrawn accounts. If you have a history of overdrafts, it may make it harder to get approved for credit or result in higher interest rates.
6. Fraudulent Activity
Lenders will also look for any signs of fraudulent activity on your bank statements. They’ll check for unauthorized transactions, bounced checks, or suspicious account activity. If they suspect any fraudulent activity, they may request additional documentation to verify your identity and financial history.
7. Length of Banking History
Lenders prefer borrowers who have a long history with their bank or credit union. They’ll analyze your bank statements to see how long you’ve had your account and whether you’ve maintained a consistent balance. If you’re a new customer or recently opened a bank account, it may make it harder to get approved for credit.
8. Frequency of Transactions
Lenders will also look at the frequency of your transactions to determine your financial behavior. They’ll check for any sudden increases or decreases in deposits or withdrawals and analyze your spending patterns. If you have a history of erratic financial behavior, it may raise concerns and make it harder to get approved for credit.
9. Credit Score
Your credit score is a crucial factor that lenders consider when evaluating your creditworthiness. They’ll check your credit score to see if you have a good or bad credit history. Lenders may use different credit scoring models, but most will look at your FICO score or VantageScore. If your credit score is low, it may result in higher interest rates or denial of credit.
10. Red Flags
Lenders will keep an eye out for any red flags on your bank statements that may indicate you’re a high-risk borrower. They’ll look for any signs of financial instability, such as frequent overdrafts, missed payments, or high debt-to-income ratios. They’ll also check for any recent job loss, divorce, or medical expenses that may impact your ability to repay the loan.
Conclusion
When applying for credit, it’s essential to understand what lenders look for on bank statements. By understanding the factors that lenders consider, you can take steps to improve your financial profile and increase your chances of getting approved for credit. Make sure you have a stable source of income, keep your expenses in check, manage your debts responsibly, and maintain a good credit score. By doing so, you’ll be well on your way to securing the credit you need.