Five Things To Know About Your Credit Score Before You Apply For Your Next Loan
Monday, November 25, 2013, 1:00 AM | Leave Comment
The process of applying for credit is easy enough. You fill out a few lines on a form, present a copy of your drivers license, and the bank or retailer will then submit your application. Most people know this and have gone through the process before.
However, many people will end up getting rejected for a loan, or end up with interest rates and other fees that are simply unacceptable. The usual cause for this is your credit score. What you don’t know about your credit score could impact your ability to get approved for a loan.
Here is a quick look at some of the things that you should know before you go and apply for another loan.
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Too Many Inquiries Can Lower Your Credit Score
Each time a lender checks your credit, it could potentially lower your credit score. When you fill out an application for credit, a hard inquiry is made on your credit. If you have too many hard inquiries on your credit report, lenders may think that you are too reliant on credit to get by. This makes it important that you only take out loans when you truly need them.
You should also do your research before applying for a loan, since this will increase your chances of getting approved faster and not having to apply to several different places.
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Each Credit Bureau Has Different Information
Equifax, TransUnion and Experian are the three major credit bureaus. While creditors report to all three agencies, they may not report the same information to all three agencies.
It is up to you to make sure that any inaccurate information is fixed before applying for a loan. Many people make the mistake of never checking their credit score, but this is something that should be constantly monitored. This will give you ample time to correct any problems well before you begin applying for a loan.
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Your Score Could Be Calculated Differently By Different Credit Bureaus
There are a variety of ways in which your credit score is calculated. Prior to applying for a loan, ask the lender which scoring model will be used to determine your creditworthiness. It could be the difference between getting a loan and putting a hard inquiry on your credit report for no good reason. This makes it important that you keep track of all your different credit scores and that you research a bank or financing center about what credit bureau that they use.
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You May Never Find Out Why You Were Denied For A Loan
You can ask a lender why your application for credit was denied. However, it doesn’t mean that you are going to get an answer. Due to privacy laws and other lending rules, you may never know the precise reason why your application was denied. Yes, this can be annoying, but it is all the more reason to keep track of your credit score and to only apply to places where you have a high chance of having your loan approved.
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Applying For A New Loan Could Hurt Your Credit History
Let’s say that you are working with a real estate company such as the Partners Trust when you are trying to buy a new home. You have found your perfect home and the company gets you the perfect loan. You have done everything right, so why did your credit score go down? When you get a loan, your credit score is going to go down at first for a couple of reasons.
First, you will have a new debt on your credit report. Second, your average age of your credit accounts will go down as well. Both factors contribute significantly to your overall credit score. This might make it difficult to get additional lines of credit, even if you did everything right.
If you are thinking about applying for a loan in the near future, you should research the pros and cons carefully before doing so. Applying for a loan, or applying for too many loans, could hurt your credit no matter whether your application is denied or accepted.
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