Why You Should Check Your Credit before Applying for a Loan
Making a loan application is never fun, but it’s necessary for getting things like houses, cars and other large purchases if you don’t have a huge chunk of cash gathering dust somewhere. However, getting a rejection is even less fun than applying for a loan, especially when you were confident of approval. Everyone should check their credit prior to applying for a loan, so they don’t get blindsided when it is least expected.
Credit Scores and Risk
Everyone knows that the three major credit bureaus in the United States, Experian, TransUnion, and EquiFax, take in all kinds of financial data about people and put everything together into a concise report; each entry has a positive or negative value, and all entries are tallied to produce a credit score. To lenders, high credit scores equal low risk, and low credit scores equal high risk, as someone with a low score has likely been irresponsible about making payments and carries too much debt. Before signing that application, make sure you know whether you’re really a good risk or not.
Are You Overextended?
One major thing that lenders scrutinize on someone’s credit report is their debt-to-income ratio. If your report shows a significant amount of debt (this includes other loans you may be paying on, balances on open and closed credit cards, etc.) versus how much you earn per year, the lender won’t want to award you a loan, because they will be unsure you can keep up with the payments. People with high debt-to-income ratios are one step away from financial problems if they miss just a few payments or suffer a monetary setback, such as illness or job loss. That’s a credit no-no.
Is Everything Correct?
Prior to applying for a loan, pull a credit report and ascertain that all the data there is correct, especially your name, birthday, social security number, addresses, and employment and educational information, since anything incorrect could be a sign of identity theft. Also, make sure any accounts which have been paid off show as such, and that any information older than seven years (apart from bankruptcy) is no longer appearing, since these things can lower your score and decrease the likelihood of being issued the loan you want, or at least increase your interest rate.
Why is That There?
Going hand-in-hand with verifying that all pertinent information is correct on your credit report, you should make sure there aren’t any odd entries, such as credit cards you never applied for with open or charged-off balances, or multiple inquiries from housing or credit-granting agencies, especially from areas of the country where you’ve never been. If any of the three credit reports varies greatly from the others, check to make sure it’s not because someone else has stolen your information and targeted you for identity theft. If so, you have time to report it prior to making an application.
When someone has taken the responsible step and checked their credit report before they make the big plunge into applying for a loan, they frequently find things which need attention: almost 50% of credit reports contain incorrect or fraudulent information. Some things can be removed outright, and others require some work on your part, but fixing these items can be invaluable to your financial future and mean you get the loan you need.
The stock market may be making a move to the upside, but that certainly doesn’t mean that we are out of the dark. Most people don’t reap the benefits of a good stock market until much later. House prices are still depressed, most of us are locked into high rates of interest on our credit cards, and our salaries certainly aren’t going up at the rate of inflation. So, now is a great time to apply for personal loan funds, especially since new loans have an affordable interest rate.