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There are several different ways that a lender can qualify you for credit. First and foremost, a lender will request your permission to access your credit report. This is the only way that they can start their process, so if you wish to receive their services, you must release your credit report. After the lender receives your most recent credit report, they will overlook it and pay close attention to any negative charges. Every negative charge on your credit decreases your credit score, but it is not the only source a lender looks at. Each lender has its own yardstick to decide qualifications for credit. Some lenders calculate ratios from your credit report. There are several different formulas, one being the short term debt ratio. This shows how much debt you have compared to your annual income. If the percentage is too high, the lender may not wish to grant you credit because you are considered high risk. Lenders also look at other points of interest when deciding if you are credit worthy. They look at how long you have been steadily employed, how long you have lived in your home and if you own it, as well as current accounts that you may already have with the lender. Having any of these qualities can increase your chances to get credit, even if your credit report is not up to standards.
Consequences of Bad Credit?
The consequences of having a bad credit report are numerous. You could be charged a higher interest rate, you could get worse deals on loans and credit cards, you could be forced to pay high deposit fees on utilities or you could even be denied the loan you are seeking. The worse your credit score the more you are going to have to pay if you are even approved for the loan. A bad credit score will not only cause headaches but it will ruin your financial life.
Improve My Credit?
Here are a few ways to improve your credit, this improving your chances of getting that loan:
- Pay your bills on time! It’s simple, but it’s the number one cause of bad credit.
- Don’t max out your credit cards that will only increase your debt to income ratio.
- Don’t make the minimum payments on your bills; in the long run it will also increase your debt to income ratio.
- Be smart; don’t buy things you don’t really need. If you end up not being able to pay a credit card bill on time your interest rate could jump into the 20s.
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