Are you thinking about getting a car or buying your first home? Theres a lot to consider: How much do you have to put down? Where will you go for a long? How much can you afford to pay on a monthly basis with all additional costs considered (insurance, taxes, interest, maintenance, etc)? While all of these are great questions that will need answered, they are all secondary to your primary concern: Whats in my credit profile?
If youre planning on seeking a loan to make a large purchase, youre going to want to take the time to review your credit profile and make sure there is nothing preventing you from reaching your goal. You may or may not know it, but youre entitled to see your credit report for free once a year. Before you go to a lender, pull your own credit report to make sure that everything is accurate. So what should you look for?
First of all, its important to remember that we live in a digital age in which identity theft runs rampant. Make sure that all the items on your credit report actually belong to you. If you see something you dont recognize, you will be able to launch an investigation for free. If it is determined that the item does not legitimately belong to you, it will be removed.
If you have one or more credit cards, you will want to look at your balance history. Ideally, you want your available credit to stay high and your average balance to stay low (around 30% or less of your total credit line). If your credit cards balances are high and you have very little available credit, this doesnt look great to a lender. If your report shows high credit card balances, you may be interested in paying down your credit cards for a few months before seeking a loan.
Pay as much as you possibly can to get the balances down first. If you are able to get your balances down to below 30% of your available credit, maintain that level by making small purchases throughout the month that you will be able to pay in full the following month. Do this for 4-6 months so by the time your prospective lender reviews your credit report, he/she will see consistent payments above the minimum and a consistently low balance.
If you have old items on your credit report like repossessions, charge-offs, or delinquent accounts, try your best to resolve them. Remember that most creditors would much rather take something than nothing; you may be able to negotiate a payoff amount that is considerably lower than the amount you actually owe. If youre not able to negotiate a lower balance, perhaps you can negotiate a payment plan to finally remove those negative charges from your credit report.
For some, taking the time to review and repair credit may seem like a lot of work. The bottom line, though, is that its well worth your time to fix your credit report before seeking a loan. Remember that each time a creditor runs your credit report, your score drops. If you dont have good credit and youre trying multiple lenders only to get rejected multiple times, you will have an even lower chance of getting approved than before.
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