What Are Lenders Looking For in Credit Reports?
These days getting a loan is not nearly as easy as it was in the last decade. Thanks to the recession and the near-collapse of the housing market, lenders are taking a longer, harder look at a person's credit score and history report. They have tightened their purse strings so much that even credit score guidelines have increased. If you have not repaired your credit to a level about 720, you can likely forget about the best interest rates and loan terms.
Lenders Getting More Stringent
Today's lenders are looking primarily for one thing – financial responsibility. They want to ensure they are not loaning money to individuals less inclined or less capable of paying the money back. Income is a factor in the decision making process but most lenders will take into heavy account of how you have used your other lines of credit in the past.
If you have a history of late payments or ones you have recently missed completely, they will take that as a sign you may not be able to keep up with all of your financial obligations. This potentially signals for them they will lose money. Since no one is looking to take a loss, lenders who eventually do approve a loan for someone with less than perfect credit will institute a much higher interest rate than what a person with an excellent score would receive.
Lenders are also looking to see how much credit you have taken on and how you use it. If you have maxed out your credit cards and are already paying on another loan, they may be inclined to deny approval for yet another financial transaction. They will be concerned with your ability to effectively manage the money and the credit you already have.
How to Prevent Getting Unfavorable Loan Terms
If you are in need of financing, it is always best to take it upon yourself first to see where you stand financially. If improvement of credit is necessary, you need to take action to boost your credit score long before authorizing a creditor to look at your report. If you appear to be a risk at all by recent activities on your credit report, you need some time to work on getting a higher score and paying off the debts you already have.
Ordering your credit reports and score will help ensure everything is accurate and that creditors are getting a true picture of your credit background. Otherwise you may jeopardize your chances of getting loan approval the first time around. See where you stand so you'll have reasonable expectations when applying with the lender.
In some instances, it may seem impossible to plan far enough ahead to accommodate credit repair but if you were utilizing proper budgeting techniques, you would likely have a good idea early on when you might need financing. Waiting until the last minute can cost you a lot of money in higher interest rates over the course of the loan. Plus, if you truly can't afford the loan you are seeking, you'll be hit with stiff penalties.
Credit repair will take some time but it is certainly a beneficial way to save money in many facets of your financial life. You can not afford to live with bad credit regardless of your need for financing but when it comes time to apply for a loan, you'll be much more financially to take advantage of the best loan terms and deals.
Questions and Answers
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