Three Factors that Help You Get a Better Loan

If you’re thinking of applying for a mortgage, car loan or other loan, getting the lowest interest rate possible is critical; in fact, even a slightly lower rate can mean tens of thousands of dollars in savings over the life of a mortgage. To get the best rates, you need to understand how lenders evaluate you during the lending process. Here are the top three factors lenders use when evaluating your creditworthiness:

Amount of Credit in Use

Potential lenders will look both at the total amount of credit lines on your account and the percentage that’s being used. In general, you want to keep the amount of credit you’re carrying as low as possible – ideally no more than 20 percent of each card’s total limit. That means that for a card with a $1,000 credit limit, you would ideally want the amount you’re carrying to be at or below $200. In addition to having a healthier credit score, carrying a low monthly balance also means you’ll be paying lots less in interest and reduces the risk of over-limit fees and penalties. If you’re carrying a lot of debt, look into a debt consolidation service to have interest rates reduced so your monthly payments go further.

Payment History

Your payment history is the number one factor most lenders look at first when determining whether or not they’re willing to offer you a loan and when determining the interest rate or terms they’re willing to offer. Payment history also has a huge impact on your credit score: Even a single late payment can cause your score to drop considerably. The good news is that as you begin to establish a good payment history by making all your payments on time every month, your payment history will improve and your score will increase. Enrolling in a credit counseling and debt management program like CreditGuard can help you establish a regular repayment history utilizing monthly payments that you can afford. Credit counseling services make repayment easier by combining payments from all your different unsecured accounts into one sum that you pay only once each month. Combining many payments into one is a big step toward ensuring you pay your bills each month, which in turn goes a long way toward improving your credit history and score.

Length of Credit History

Creditors also look at how long you’ve had loans so they can get a better determination of how you’ll handle credit over the long term. The only way to improve this factor is to keep your credit lines open as long as you can; that means avoiding having lots of late payments or other negative behaviors that can result in credit cards being cancelled by the lender. Many borrowers mistakenly believe that cancelling cards is a path to better credit, but in fact, if you cancel the older cards in your history, you can cause your score to drop substantially. Learning to maintain open lines for a long time depends largely on consistently applying smart financial and credit management habits. Credit counselors can provide the guidance you need to ensure you understand the best financial moves to make to preserve a good credit score.

Keeping an eye on your credit and financial habits is a crucial component in getting the best loan rates. Enrolling in a debt consolidation and credit management service can help ensure you develop the best credit history and score possible.

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