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Articles » Free Annual Credit Report | | Manage Your Credit Report and Keep It Attractive to Lenders |
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Your credit report is the single most important element in the process of obtaining a loan or mortgage from a bank or lending agency . It is reviewed when you purchase a car, apply for a credit card, even for employment or apartment rentals. It is imperative, if you want to be financially successful, that you keep your credit report attractive. Understanding what this means will help you achieve that.
To begin with, you need to know what makes a credit report attractive. There are certain items that lenders look for when they first review it. These include the overall score, the number of inquiries made, outstanding debt, defaulted debt, bankruptcies, tax liens, and judgments against you. All of these can reflect negatively on you and can be reasons for denial of credit.
How do you eliminate these harmful elements? First, you need to get a copy of your credit report and see what they are. The big three credit reporting agencies, Experian, Equifax, and Trans Union can provide you with a copy, free of charge in a 12-month period, to use as a starting point. Take a look at the categories for each of the areas we have just listed. Bankruptcies, liens and judgments can be found under “public records”.
Any normal debt over seven years old can be automatically removed by writing a letter to the credit reporting agency and requesting it. Bankruptcies remain for ten years and tax liens never go away. Some entries will be beyond your control. If you have defaulted on a loan, you need to pay it off or wait the seven years for it to disappear. As far as inquiries go, you should limit those to four to six over a six month period. Too may requests for copies of your credit report reflect badly on you and cause lenders to hesitate before giving you a loan.
Outstanding short term debt is evaluated using a 20% rule. You can calculate this yourself by adding up all of your short term loans, installment plans, credit card payments, etc. and then multiplying the total by 100 and dividing that number by your annual income. If the number you arrive at is less than 20%, you will be considered a good risk by the bank. If your short term debt is over 20%, pay some of it off before you apply for a loan. It will look better in the eyes of the lending institution and will increase your chances while possibly lowering your interest rate.
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