Your credit score can have a major impact on your financial life. Depending on the type of loan you're applying for, your credit score may be the only thing standing between you and getting approved. In we discuss some things that can happen when your credit score is bad, how to improve it, and how to avoid falling into a cycle of bad debt.
You might not think there's much difference in having good or bad credit scores but it actually makes a big difference. When people with low scores apply for loans or other forms of financing they are often denied from borrowing money because their risk profile is considered too high by lenders.
Some Steps you can take if you are concerned low credit scores:
1. Check your credit reports: It's important to know what your credit report says about you. To do so, check it for errors or visit annualcreditreport.com to see the three reports that are based on information from each of the major bureaus and gives you a complete overview of how your financial history is viewed by lenders. Remember that this is just one measure of your financial health, but not necessarily the most important one! You can also use this time as an opportunity to take steps towards improve your credit score if needed.
2. Learn your debt to credit and debt to income ratios: If you have ever applied for a loan, credit card or mortgage, chances are that your debt to income ratio has been calculated. This ratio is one of the most important numbers in determining whether or not you will be approved for what type of financing you are looking for. Your debt to income ratio is calculated by dividing your monthly debts by your gross annual income and multiplying it by 100%. If this number exceeds 40% then it is likely that you will not be eligible for any type of financing.
3. Consider adding a consumer statement to your credit reports: Do you have a credit score? If so, then it is important to know that not all three of your credit reports are the same. The report from each individual bureau will have different information in them. A consumer statement on one's credit reports can be helpful for those who are struggling with their scores because it may explain why they were declined or late on payments. By adding a consumer statement to your report, you will be more knowledgeable about what is being held against you and how to improve your score.
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