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Author:
James Martell
Web Site: http://www.1st-choice-loans.com
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.
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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