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Are you a fit borrower

You probably are hoping that you can get the lowest rate on your next car or home loan but have you done everything possible to be a sought after borrower?  There are a few simple steps you can take to make yourself an attractive borrower that will help you always get the best rate.
 
What are the basics of being a good credit risk?
It starts with your past credit history, so paying all your bills and loans on time and avoiding issues like collection items or tax liens.  These are all building blocks of being considered a strong borrower.  And remember, it is not just information on loans or credit cards that credit reporting agencies have about you.  Information regarding late payments on utility bills, non-payment of tickets and other non-credit items can all impact your credit score.
 
What does it take to go to the next level of credit risk?
To be considered an excellent credit risk you have to show your ability to manage credit which means having different types of debt but managing it properly in regards to utilization and total amount of credit extended.  This means if you have history with credit cards, installment loans and mortgage loans in your credit file and they all get excellent ratings, your credit score will improve.  Balancing how much credit you have available and the amount you utilize from your credit limit is also important.  Keeping the utilization under 50% is always considered a strong behavior.
 
How does income factor into this equation?
Household income is a major factor as most lenders are going to look at your total monthly debt payments compared to your gross monthly income or your total debt ratio which needs to be less than 40% for most people to be considered an excellent credit risk.  The ability to repay is an important component of all real estate loans and there are government mandated limits that lenders must follow for many of these types of loans.
 
Is there anything else to improve your credit risk profile?
Yes, avoid red flag issues like multiple credit inquires over a few days or having credit card limits/balances that exceed 30% of your gross income.  Both indicate a borrower who could be overextending themselves with credit. Lenders are attempting to predict your future performance based on your past performance and your current financial situation.  If your past is spotless and your current financial situation is excellent, you will be an attractive borrower to most lenders.


Posted: 10/21/2014 with 0 comments

Categories: Credit, Money Matters



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