| Applying for a
Loan?--Start by Ordering Your Credit Report If you are considering applying for
a loan, ordering a copy of your credit report may
well be the best place to start. Why? Because
it’s also the first thing a potential
creditor will be looking at, and even if you pay
your bills on time, you will want to ensure that
all the information in your credit file is
up-to-date and accurate.
Studies have shown that
many credit files contain inaccuracies that could
affect your credit rating, and even lead to the
rejection of a loan application. That’s why
reviewing your credit report beforehand may be a
good idea, giving you time to dispute any items
that may be the result of simple human error or a
technical glitch.
And depending on whether
you are applying for an auto loan, a mortgage
loan, or a loan for business or personal use,
different lenders may apply different standards
in rating your credit worthiness. For this
reason, reading your credit report and
understanding how your credit data might be
interpreted may give you a chance to improve your
credit worthiness from the point of view of a
lender. If you would like to get a free copy of
your credit report right now,  click here.
Before you begin the
application process, check your credit report for
the following items:
Clerical Inaccuracies
Sometimes credit reports
contain inaccuracies that are the result of a
computer glitch or a clerical error. These may
include payments not credited, late payments, or
data mixed in from a credit file of someone with
a name similar to yours. Ordering your credit
report will quickly show you what the lender will
see--then it’s up to you to dispute any
information that you consider inaccurate. If you
would like to get a free copy of your credit
report right now, click here.
Excess Unused Credit
To make your credit more
attractive to a potential lender, you may wish to
consider reducing the number of revolving charge
accounts that are listed as active on your credit
report. Lenders will sometimes view too much
revolving debt as a negative when considering a
loan application.
In situations where you
have stopped using a credit account, it is often
a good idea to close the account if you
don’t plan to use it anymore. Make sure your
creditor notates the account “closed at
consumer’s request”--otherwise, a
prospective lender might assume the creditor
closed the account for other reasons.
A few credit cards managed
well may improve your chances for a
loan--particularly a mortgage loan, where lenders
use stricter qualifying guidelines. Another rule
of thumb is to keep balances on credit cards
around 75% of the available credit limit.
Ironically, credit cards that have lots of room
on them may be viewed as potential debt, while
maxed-out cards make you a less desirable credit
risk--both of these situations could compromise
your ability to obtain a loan.
If you would like to get a
free copy of your credit report right now, click here.
30-day and 60-day Late
Payments
Even if your credit report
contains a couple of 30-day late payment entries
that are accurate, many lenders will overlook the
occasional late payment if you explain the
situation and your credit is otherwise good. Try
to avoid any payment being 60 days late however,
as this may be a red flag for some lenders--even
if they do grant you the loan, it may come at a
higher rate of interest and with less favorable
terms.
The primary period lenders
are interested in on a credit report is the last
two years, so try to maintain on time payments,
and verify that the payments are being credited
properly by checking your credit report
regularly. If you would like to get a free copy
of your credit report right now, click here.
Avoid Unnecessary
Inquiries
Each time a prospective
creditor looks at your credit report, an inquiry
notation is added to your file, and most
inquiries stay on your credit report for up to
two years. Inquiries you make yourself, inquiries
made during screening for a pre-approved offer of
credit, or an inquiry that is part of a
background check for employment purposes are not
reported to potential credit grantors.)
It is best to avoid
over-applying for credit and running up excessive
inquiries, for the simple reason that lenders of
creditors may think you’re trying to get
credit due to financial difficulty, or taking on
more debt than you can repay.
Lenders do of course
realize that some inquiries are a result of
shopping around for the best rates on a loan, and
so they will often overlook a block of inquiries
within a very recent period. It may help if you
explain the inquiries in the application process.
If you would like to get a free copy of your
credit report right now, click here.
Understanding how your
credit report affects your financial future is
the key to smart credit management. Incorporating
a review of your credit report into your
financial planning is also one of the best ways
to make sure you meet your goals--especially when
those goals involve major purchases, and
you’re shopping for a loan with the most
favorable terms possible. So get a free copy of
your credit report right now, by clicking here.
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