What do lenders typically evaluate to determine a borrower's creditworthiness?

Lenders typically evaluate credit history, income, employment stability, and debt-to-income ratio to determine a borrower's creditworthiness because these factors provide a comprehensive view of a borrower's financial health and ability to repay a loan.

Credit history reflects a borrower's past behavior in managing debt, including timely payments and overall credit utilization, which indicates reliability. Income verification demonstrates the borrower's ability to make monthly payments and cover living expenses, while employment stability shows the likelihood of continued income. The debt-to-income ratio combines these elements to assess how much of a borrower's income goes toward debt obligations, giving lenders insight into the borrower's financial capacity to handle additional debt.

This holistic approach allows lenders to make informed decisions about the risk associated with lending to a particular borrower, ensuring they minimize potential defaults and losses associated with loans.