How important is credit history and credit score?
Typically, lending companies and banks will look at the borrower’s credit history and score to determine if he or she is qualified for a loan. These are important factors that identify the borrower’s credit worthiness. Credit history is a record of the borrower’s activity showing how responsible he or she is as a debtor and how much debt he or she currently has. A credit score on the other hand, is a numerical expression that rates a borrower’s credit worthiness. It is a number between 300 to 850. The higher the score, the better the chances at getting a loan of any amount.
Initially, credit scores and history are the basis for a loan approval, apart from the usual requirements such as identification, proof of residence and proof of income. For a borrower with a good credit score – between 670 to 740 – taking out a loan is easy with almost guaranteed approval from any kind of lending institution or company. However, if you are one of the many borrowers with poor to bad credit scores, the chances are bleak. Worry not because there are certain things that can help you put yourself in position to get a loan.
Here are a few tips.
Request and review your credit reports.
You can easily request your credit reports online or via phone call for free. Credit reports are issued annually, and they contain all information related to your credit history. Upon receiving your reports, review them carefully and monitor for possible errors. Compare the reports since there are possibilities that some activities may not appear to be listed in all reports. Erroneous entries, inconsistencies and disputable info should be corrected immediately and if not, these can negatively impact your ability to get a loan approval.
Find ways to improve credit score.
The initial step is to review your credit reports and understand your current credit standing. From here you should pay your bills on time and as much as possible clear all long-time debts by paying them in full. One option is to charge all your monthly bills payment against your credit card. By doing this, it may appear that you will make full payments each month in efforts to avoid interest charges. This option would help simplify bill payments while boosting your credit score. Another way to improve your score is by debt consolidation wherein you can combine all your existing debts into one repayment with better terms, interest rate and tenure. With debt consolidation, you can easily manage your debts because you only have to pay one lender. There will be no more room for late payments which will eventually improve your credit history and score.
Study available loan options.
The available loan options for people with either good or bad credit are basically the same, but approval rate differs since credit score is a crucial deciding element. The chances of getting a positive result in your application become higher if you choose to get a secured loan wherein collateral is required. However, if you wish to apply for a loan with your bad credit score you can ask someone to act as a guarantor but make sure that his credit score is of good standing, or you may search for financial lending institutions that offer to help people with bad credit.
