If you are considering applying for a loan, ordering a copy
of your credit report may well be the best place to start. Why?
Because it’s also the first thing a potential creditor will be
looking at, and even if you pay your bills on time, you will
want to ensure that all the information in your credit file is
up-to-date and accurate.
Studies have shown that many credit files contain
inaccuracies that could affect your credit rating, and even lead
to the rejection of a loan application. That’s why reviewing
your credit report beforehand may be a good idea, giving you
time to dispute any items that may be the result of simple human
error or a technical glitch.
And depending on whether you are applying for an auto loan, a
mortgage loan, or a loan for business or personal use, different
lenders may apply different standards in rating your credit
worthiness. For this reason, reading your credit report and
understanding how your credit data might be interpreted may give
you a chance to improve your credit worthiness from the point of
view of a lender. If you would like to get a free copy of your
credit report, 
click
here.
Before you begin the application process, check your credit
report for the following items:
Clerical Inaccuracies
Sometimes credit reports contain inaccuracies that are the
result of a computer glitch or a clerical error. These may
include payments not credited, late payments, or data mixed in
from a credit file of someone with a name similar to yours.
Ordering your credit report will quickly show you what the
lender will see--then it’s up to you to dispute any
information that you consider inaccurate.
Excess Unused Credit
To make your credit more attractive to a potential lender,
you may wish to consider reducing the number of revolving charge
accounts that are listed as active on your credit report.
Lenders will sometimes view too much revolving debt as a
negative when considering a loan application.
In situations where you have stopped using a credit account,
it is often a good idea to close the account if you don’t plan
to use it anymore. Make sure your creditor notates the account
“closed at consumer’s request”--otherwise, a prospective
lender might assume the creditor closed the account for other
reasons.
A few credit cards managed well may improve your chances for
a loan--particularly a mortgage loan, where lenders use stricter
qualifying guidelines. Ironically, credit cards that have lots
of room on them may be viewed as potential debt, while maxed-out
cards make you a less desirable credit risk--both of these
situations could compromise your ability to obtain a loan.
If you would like to get a free copy of your credit report, click
here.
30-day and 60-day Late Payments
Even if your credit report contains a couple of 30-day late
payment entries that are accurate, many lenders will overlook
the occasional late payment if you explain the situation and
your credit is otherwise good. Try to avoid any payment being 60
days late however, as this may be a red flag for some
lenders--even if they do grant you the loan, it may come at a
higher rate of interest and with less favorable terms.
The primary period lenders are interested in on a credit
report is the last two years, so try to maintain on time
payments, and verify that the payments are being credited
properly by checking your credit report regularly.
Avoid Unnecessary Inquiries
Each time a prospective creditor looks at your credit report,
an inquiry notation is added to your file, and most inquiries
stay on your credit report for up to two years. Inquiries you
make yourself, inquiries made during screening for a
pre-approved offer of credit, or an inquiry that is part of a
background check for employment purposes are not reported to
potential credit grantors.)
It is best to avoid over-applying for credit and running up
excessive inquiries, for the simple reason that lenders of
creditors may think you’re trying to get credit due to
financial difficulty, or taking on more debt than you can repay.
Lenders do of course realize that some inquiries are a result
of shopping around for the best rates on a loan, and so they
will often overlook a block of inquiries within a very recent
period. It may help if you explain the inquiries in the
application process.
Understanding how your credit report affects your financial
future is the key to smart credit management. Incorporating a
review of your credit report into your financial planning is
also one of the best ways to make sure you meet your
goals--especially when those goals involve major purchases, and
you’re shopping for a loan with the most favorable terms
possible. So get a free copy of your credit report, by clicking
here.
(c) 2000 ConsumerInfo.com. This article is the
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Information provided by ConsumerInfo.com is for
informational purposes only and is not a substitute for
professional financial or credit advice.
Published: August 23, 2002
