Many citizens are facing some serious financial struggles. If you have been considering applying for a mortgage, a car loan, a credit card, or a consolidation loan, it’s a good idea to do some work before you take the time to apply
Credit Score
Checking your credit score at least once a year is a wise choice. By keeping an eye on your credit score, you can be made aware of any fraudulent activity on your accounts. It’s also a good idea to note any factors that are currently lowering your credit score.
If you’re just starting out in life, you may not have a credit score. The first step in building a healthy credit score is to open up a bank account. Route paychecks via direct deposit into this account. Regular paychecks, regularly deposited, are one indication of a good work history.
Work History
In addition to regular paychecks, it’s a good idea to demonstrate work longevity. The longer you stay with a particular employer, the more reliable you appear to lenders. Be ready to provide copies of check stubs and bank statements to potential lenders for loans such as a vehicle or a house.
If you’re a freelancer or self-employed person, you should be prepared to offer up more information to qualify for a loan. Lenders will need confirmation that you can produce a steady income.
Credit Usage and History
To keep things simple, credit usage refers to the gap between what you can borrow and how much you owe. If you have a credit card that has a $1,000 limit, you want to keep the debt you carry under $300 if at all possible. Maxed out credit cards are an indication that you struggle to manage your available credit.
If your current financial situation means that you must carry a balance, it may make better sense to carry a small balance on two cards rather than a large balance on one card. As possible, pay off your credit card balances quickly.
Your credit history can be best understood as your payment history. Anyone can hit a bad patch and be unable to pay their debts for a time. Late payments and bounced checks will negatively impact your credit score and loan approval chances. A bankruptcy will also show up on your credit history and have a negative impact.
Secured Vs. Unsecured Debt
Functionally, secured debt is debt that is backed up by collateral. If you borrow to buy a car or a house, these things can be repossessed by the lender if you don’t pay the loan. This debt is secured.
Unsecured debt is not tied to a tangible item that can serve as collateral. Credit card debt is a common form of unsecured debt. Having too much unsecured debt can negatively impact your loan approval chances.
If your credit score is low, order a free copy of your credit report. Review it for errors. Talk with your banker about the best way to reduce negative factors that can damage your ability to get a loan.
