Most creditors have one thing in common: They don't know whether or not you're trustworthy so they review your money habits for clues. To do this, they request a copy of your credit report. What the creditor finds here can significantly impact its decision, but since a credit report doesn't include all your accounts, the creditor may need more information.
What Matters to Creditors
Since lending money is a business, a creditor's primary concern is to see a return on its investment. If your credit report shows that you have a history of making late payments on credit accounts, or that you've filed for bankruptcy or had liens on your property, your chances of getting new credit decrease. Your savings account isn't credit --- that is, a debt you owe to a creditor --- so credit reporting agencies don't include information about it on your credit report.
When Your Savings Matter
Your credit report only tells creditors how much you owe to others, not how much money you have to make payments on new credit. This is important, because while your credit report may show a perfect payment history, an additional debt may be too much for you to bear financially. Creditors often use your debt-to-income ratio to determine whether you can handle additional debt. They divide the sum of your monthly debt payments by the amount of your monthly income. If the result is greater than 36 percent you may have trouble getting new credit.
Creditors who want a fuller picture of your finances, such as mortgage lenders, request information about all your assets, including your savings accounts. These creditors may request bank statements to verify your claims.
Improving Your Credit Score
Since a high credit score is important in most credit applications, make a priority of improving yours if it's below 720. A score of at least 700 improves your chances of getting new credit, but if your score is 720, creditors consider it perfect, according to CBS' The Early Show. Your payment history affects your score more than anything else, so pay all your debts on time. Apply for credit infrequently, keep few but varied accounts and keep your debt to a minimum to boost your credit score. It may take a year or longer to see results, but creditors can see your progress along the way.
Saving More
Maintain a substantial savings account not only for the sake of applying for credit but also for your own financial security. Save money from every paycheck after you pay your bills but before you use the money for anything else. Financial expert Dave Ramsey suggests having an emergency fund of at least $1,000. Speak with your financial adviser to determine how much money you should save for retirement.
0 comments:
Post a Comment