If you’re applying for a loan and are worried about a low credit score, here are some steps you can take to ensure you still get the loan.
Check Your Credit Reports
Checking your credit report serves 3 purposes—verifying if there’s any activity that may signal potential identity theft or fraud, ensuring all the information on the report is accurate and complete and understanding what your current situation is to get a fair idea about what creditors may see when you apply for a loan.
Speak To Various Lenders
Getting information from different lenders can help you understand their general requirements for someone to qualify for a loan. If you’re likely to wait for some time before applying for a loan, which is advisable, avoid hard inquiries at this point as it may further damage your credit score on your credit reports.
Find Out Your Debt-To-Income And Debt-To-Credit Ratios
Your debt-to-income ratio, usually expressed as a percentage, is the amount of debt you have in comparison to your income. Calculate this ratio by adding the total monthly recurring debt (credit card payments, vehicle loan payments, and the like). Divide this total by your monthly gross income (what you make per month before expenses, taxes, and withholdings). For instance, if your monthly debt is $2,000, and your monthly gross income is $6,000, your debt-to-income ratio is 33%.
Your debt-to-credit ratio is the amount of revolving credit (credit cards and lines of credit) you’re using from the total credit available to you. This amount may vary every month. To calculate it, add the total amount you owe on revolving credit accounts and divide it by your credit limits. For example, if the amount you owe on two credit cards is $5,000, with the limit of the two cards being $10,000, your debt-to-credit ratio is 25% or .25.
Your debt-to-credit ratio is taken into account while calculating your credit score, while the lender will evaluate your debt-to-income ratio to decide whether to approve your loan application.
Add A Consumer Statement To Your Credit Reports
Your credit situation may have been affected due to an illness, a job loss, or any such circumstance. You can add a 100-word statement to your credit report, explaining the situation. The creditors can read the statement when they check your credit reports.
