Texas Real Estate Sales Agent ExamFinancingMedium
A lender is evaluating a borrower's creditworthiness for a conventional loan. Which of the following would be considered a 'red flag' that could negatively impact the borrower's ability to obtain the loan?
- AA history of late payments on credit cards
- BA low debt-to-income ratio
- CA credit score of 720
- DA stable employment history of 5 years
Show answer & explanationAnswer & explanation
Correct answer: A. A history of late payments on credit cards
A history of late payments on credit cards indicates a higher risk of default and is a significant 'red flag' for lenders when assessing creditworthiness, potentially leading to loan denial or less favorable terms.
Why the other options are wrong
- B. A low debt-to-income ratio indicates a borrower has more disposable income to cover mortgage payments, which is favorable.
- C. A credit score of 720 is generally considered good and would positively impact creditworthiness.
- D. A stable employment history demonstrates reliable income, which is a positive factor for lenders.
Creditworthiness
A lender's assessment of a borrower's ability and willingness to repay a debt, based on their financial history.
- Evaluated using credit score, debt-to-income, payment history.
- Influences loan approval, interest rate, and terms.
- Poor creditworthiness indicates higher risk of default.
Memory trick: Lenders check your financial 'traffic' for green or red lights.