Most people do not realize the fact that credit plays a very important role in the day to day proceedings of our lives. When one applies for a loan such as car loan, home loan the first thing that a lender does is do a credit check of the applicant. The credit check of the personal financial history of a borrower is conducted to see how consistent one has been in the past with repayments. If your credit record shows a bad rating then it denotes that you have not been consistent with the payments and this lowers the borrowers chances of getting a loan approved. The credit rating is given by three credit bureaus - Equifax, Experian, and TransUnion and a low score from any of them will affect your ability from getting financial assistance. There are several other reasons that might affect your financial standing and not just the credit rating, some of these are discussed below:
Lack of Credit History: You might think that it is better to have no credit history than having bad credit history but it isn’t true. A credit check gives the lender an idea about how you have handled your debts in the past. It tells them if you were consistent with your repayments or defaulted on them so having no credit history will decrease your chances of getting a loan approved. In case your credit check doesn’t show anything or reveals bad credit then lenders may display reservations in approving your loan. So even though you may not like taking credit but it is a necessary evil.
Applying More Than You Can Repay: Applying more than you can repay is a common mistake that most borrowers make when getting a loan; try to avoid it. Take multiple loans with a few months in between if you really need a big amount. With multiple repayments your loan gets approved easily and it is also easy to make the repayments.
Debt to Income Ratio: Lenders take the debt to income ration into consideration when it comes to approving a loan. The debt to income ratio measures that amount of money that one has to pay as debts every month against his/her income. Lenders usually prefer an income to debt ratio of 20 to 30 and this includes the current loan you are applying for. If you are planning on getting a loan then bring down your monthly expenses to lower the ratio.
There are several other factors that affect ones financial standing and ability to get loan. So before applying for a loan consider these points for your benefit. If you already have bad credit score then first try to improve your score and then apply for a loan.
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These Factors Will Help You Get Loans Easily