I have to tell you, I wish that someday I had enough money
to never apply for a loan again. I know, I am dreaming.
Applying for a loan is certainly something we have all done
and will do repeatedly throughout our life time. If you
are considering getting a loan for any reason, read this
article for some valuable information that may be of help
to you.
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.
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.
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.
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.
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.
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.
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Mike Powers is an internet marketer who has a website that
gears itself towards helping people repair their credit.
We offer tips and resources that help people get back on
the right track. You can visit Mike's site at:
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