Everyone is Worthy of These Creditworthiness Tips
Creditworthiness is a term you might have heard when talking to someone about a financial product or service. It's a vital term because most lenders base their decisions on it. Your creditworthiness can determine whether you get approved for a new house, car, apartment, credit card, or something else you might want. Therefore, you must understand exactly what it means and how you can build credit in a way that makes your creditworthiness favorable.
What Is Creditworthiness?
Here is some information about the term, what it means, how it works, and what you can do if you need to boost yours.
The Short Definition of Creditworthiness
The short-and-sweet definition of creditworthiness is this: worthy of credit.
That's why it's a bit difficult for a person who has never had a credit card to get his or her first credit card from a provider. Lenders can't tell whether the person is creditworthy or not. Therefore, they have to take a chance on the debtor so that they can see how they handle themselves.
Some companies do issue cards with small limits on them, and that's how new people introduce themselves to the world of credit. If such people prove themselves to be creditworthy, they get approved for credit line increases, additional credit, and offers from other lenders worldwide.
Take Care of Your Credit. Visit the Creditry Store.
How Lenders Determine Your Creditworthiness
Lenders will review your creditworthiness every time you put in an application for any type of financial product. They will base their decision on what they find in their search. Some lenders will use more information than others will. It depends on the product you request.
For example, a mortgage lender will probably go through various channels to determine whether they want to approve you. A small credit card company might only use one factor to determine whether they want to issue a new card to you. These are some of the elements that lenders use to determine whether you are creditworthy or not:
Credit Score
Your credit score is the first line of creditworthiness lenders will check before they approve or deny you for a product. Most lenders use the FICO scoring system to make their decisions. FICO scores run from 300 to 850 points. Each lender will have its own predetermined credit score that they will issue approvals for. Most credit card companies want you to have at least an average score, which was around 700 points in 2020. Some providers require an excellent score, and some will issue cards to people who have lower scores.
Negative Accounts
In a perfect world, lenders would just look at the credit scores and come up with an answer based on the score alone. Unfortunately, some lenders want to protect themselves a little bit more. Therefore, they look at other factors in addition to your score to determine creditworthiness. Negative accounts can cause you to receive a decline letter instead of an approval even if your score meets the requirements. Refusal to pay an old debt makes creditors leery that you will not pay your debt with them if you fall behind. Thus, they might not decide in your favor if they see an outstanding collection item on your report.
Time Your Accounts Were Open
Some lenders may also browse through your credit report to see how long you've had your accounts open. They may not want to approve your request if you have a lot of new accounts and not many accounts that establish faithful long-term payments. There's more to creditworthiness than simply paying your bills on time.
You have to show potential lenders that you can do it for the long haul, especially for something like a mortgage or an automobile loan. Some mortgages go on for 30 years. A mortgage lender will want to feel secure that you're likely to stick with the payments for three decades.
Debt-To-Income Ratio
Your debt-to-income ratio can also be an approval stopper if it's not where a potential lender wants it to be. For example, many mortgage lenders like to see that you have a DTI of 45% or less.
That means that your bills are only equal to 45% of your income. The lower your DTI is, the more money you have left each month for emergencies if they arise. You never know when there will be a natural disaster, medical illness, or job loss. Neither does your lender.
Recent Inquiries
Lenders also consider the number of recent inquiries you have on your report. You accumulate inquiries every time you apply for any type of credit. Those inquiries stay on your credit report for two years, and potential lenders can see them. Lenders get nervous when they see too many inquiries because it gives off an air of desperation.
The last image you want to portray when you're trying to get credit is a desperate one. It's okay to have one or two inquiries on your report, and it's okay to have more if they're all for the same thing, like a car. But any more than four inquiries is likely to put up a red flag to a potential lender.
The Detriments of Not Being Credit Worthy
Not being deemed creditworthy is a big deal. It can throw a monkey wrench in a lot more of your plans than you think. These are some of the things you can miss out on if the creditors feel that you are not a creditworthy person:
Rejected for Creidt
As an uncreditworthy person, you'll receive a lot of rejection letters from potential lenders. You won't receive credit cards, personal loans, mortgages, auto loans, or anything else that's essential to your survival in the world. So many things cost more money than you have that credit is almost necessary to exist nowadays. You'll need to make every effort possible to keep your credit score and profile on a positive upswing.
Rejected for Jobs
You might not have known this, but many employers check their applicants' credit reports before hiring them. This is especially true for financial institutions. However, a lot of other employers have adopted the credit check into their hiring processes, as well. You might put yourself right out of the perfect job if you don't handle your credit the right way.
Rejected for Homes
You already know that you most likely won't get approved for a mortgage if you have bad credit. An apartment complex can decline you for a place to live, as well. Even some independent homeowners run credit checks on their potential tenants. These people want to ensure that they will get their rent payments on time every month. They might see you as a high risk if you don't have good credit, and you could lose the room or apartment. Everyone needs a place to live. Thus, not having good credit can hugely affect your livelihood.
Untrusted Person Label
Sometimes, people automatically assume that someone who has bad credit is an overall untrustworthy person. That might be far from the truth about you, but it won't stop certain individuals from believing it. It's better to keep your ratings high to avoid being put in the same category with thieves, scammers, and other such persons. We understand that emergencies and crises can occur, and those are out of your control. Aside from that, you should always strive to have a high credit score and a squeaky clean profile.
Lower Economic Status
As we mentioned, there's a stigma associated with a lack of creditworthiness. Not only will some people distrust you, but others may try to place you in a lower economic status because of your credit score or profile. You might be treated differently even though you work hard and pay most of your bills on time. It's one of the prices you might have to pay if you receive a label as an uncreditworthy person.
Again, we urge you to take actions that will boost your credit score and keep your good name safe within your community. We'll provide you with some tips that will help you improve your credit score rating.
Tips for Boosting Your Credit Score and Profile
Now you know what creditworthiness is and how lenders determine it. Next, you need to know how you can improve your score and profile so that lenders see a creditworthy person when they check them. These are some tips that will help you to grow your score and overall reputation.
Make Payments On Time
The number one tip we can give you is to make all of your payments on time. Do not miss a payment for any reason of any kind. The reason is that your payment history makes up 35 percent of your overall credit score. One missed payment can make your score drop faster than the weather when the seasons change. Aside from that, the negative mark will follow you even after you've caught up with your account.
Keep Accounts Open
Account age is another important factor in the credit world. That's why we're giving you this tip to keep your accounts open as long as possible. Do not close your credit cards just because you pay them off. That will make your age of accounts go down. Keep them open and use a few dollars here and there just to keep them active. It can help your overall score immensely.
Double Up on Payments
Keeping your balances low is also important if you want to establish creditworthiness. Remember that you pay interest on your credit each month. Therefore, you should add the interest payment to your regular monthly payment each time. That's just a baseline strategy. Ideally, you'll want to double up on the payments if you can.
Keep Your Inquiries Low
As we mentioned before, inquiries can hurt your creditworthiness. Don't ever make unnecessary inquiries. Try to prequalify for things you want, and don't complete a full application if you don't prequalify. Contact potential lenders and ask them what their requirements are before you waste your time and have an inquiry added to your report. It will make you look much better in the end.
Keep Your Balances Down
Credit cards are mostly supposed to be used in times of an emergency. Therefore, you should never run your credit cards all the way up. The rule-of-thumb practice of creditworthy people is to use no more than 30 percent of the total limit. In other words, don't spend more than $300 of a card that has a $1,000 limit. Lenders will be nervous if you do.
Check Your Report Regularly
You should also check your credit report regularly to ensure that all your information is correct and to know where you stand. You can get a free credit report from each of the bureaus at least once every year. Use your free credit report to improve your standings.
Dispute Inaccurate Accounts
Open a dispute immediately if you see something that doesn't look quite right. You have a right to dispute incorrect reporting, inaccurate balances, or entire accounts that don't belong to you. The credit bureaus will have to resolve such matters within 30 days. A correction could add many points to your score.
Pay Off Negative Accounts
Make an effort to pay off any negative accounts if they're lingering on your credit report. You might be able to work with a former lender or a collection agency to pay the debt for less than what you owe. You need to make sure that they are willing to remove the report from your credit file if you do so. Don't pay old debts blindly. Make sure the transaction will benefit you in some way. It's the only smart way to work on your credit. Future lenders will look at you more favorably if you're able to remove some of those old debts from your report.
Keep a Good Mix of Accounts
You'll also want to keep a good mix of accounts on file. The account mix is 10 percent of your overall report. Thus, you'll want to have a variety of accounts so they can see how you handle each one of them. You will need to show how you handle installment accounts such as personal loans or auto loans. You'll also want to have a couple of credit cards on file. Getting approved for a home can raise your credit score a great deal, as well. It's sort of a prize account that you should strive to get as soon as you can.
Don't Open Too Many Accounts
You still don't want to open up too many accounts. You only need to have what is necessary. There's really no need to have more than two or three credit cards in your name at once. The same thing with a car loan.
One car loan is quite enough if you're a single person who doesn't have a family or a partner. One installment loan is enough to handle at once, as well. Lenders will consider all of those factors when they decide whether to extend credit to you.
Use Credit Monitoring Services
Another thing you should do to stay on top of your creditworthiness is to use credit monitoring services. These services are usually inexpensive, and they can help you avoid becoming a fraud victim. Credit monitoring services will alert you of any unusual activity occurring under your social security number. Once you get the alert, you can investigate the matter and take the necessary steps to resolve it. You might be able to spare yourself of losing your creditworthiness just by keeping a watch on your report.
Those are just a few tips to help you keep a positive profile. You'll probably think of some additional ways to protect yourself once you start implementing these tips.
Start Becoming a Creditworthy Person Today
You should now have a better understanding of creditworthiness and the steps you need to take to ensure that potential lenders see you as such. You can start working toward improving your credit profile today. The good news is that you can contact us for any help you need in that regard. We are a company that has been around to help consumers like you for many years.
We are not a lender, but we know some great lending institutions and we can connect you to a suitable lender, you just need to fill in some basic information below:
You can speak to one of our friendly agents if you need a loan for consolidations, homes, cars, or personal ventures. You can come to us if you need to get in touch with someone who can help you make investment or retirement decisions. You can speak to us about how to find someone to help you manage your credit. We offer a broad range of services and resources to help you navigate the world of credit much better.
It's easy as pie to get in touch with us. You can reach out to us by telephone or short form. Let us know what you need, and we'll get on it right away. It's a simple as that.