The best way to be approved for any type of loan is to have a good credit rating. For those who have had financial issues in the past, this may sound like an impossible task. You will have damaged your credit rating but you can improve it. It will take some time and effort but here are the steps that you need to take.
1. Get a Copy of Your Credit Report: You need to know why your credit rating is so bad. Request a copy of your credit report – you can get one free from each of the three agencies per year – and have a look through all the details. If there is anything that isn’t right, maybe a missed payment that was the fault of the company or a search that you never authorized, you can dispute it. Contact the company first and then dispute through the credit agency if this is not changed.
You need to avoid doing this if you know the information is correct. There will be a note placed on your file to state that some information is being disputed and it will temporarily affect your chance of gaining any financially credit or loan agreement. If the information is correct, it will remain on your report and it will have been a waste of time.
2. Add a Notice of Correction: There may be a reason why you struggled financially in the past, whether you lost your job, went through a divorce or there was a loss in the family. These factors are taken into consideration by many lenders and you can make it clear by adding a Notice of Correction to your file. This can cost a small amount of money but is worth doing.
However, it is worth noting that not all lenders will take this information into account. While they are legal obliged to look at the notice, they may still decide that you are a risky borrower.
3. Clear Your Debts: It sounds obvious but this is extremely important. Clear any debts that you have as soon as possible – especially those that are in arrears. This will make you look more credit-worthy and will show that you are taking control of your financial situation. If you have long term loans or credit cards, stick to regular payments and make sure your arrears are up to date.
The debts will stay on your report for a maximum of seven years, depending on the severity of them, and can affect your ability to gain credit. Mixed with a Notice of Correction and being paid up to date, you will show that you are becoming more sensible with money and are no longer in the financial mess that you once were.
If you want to gain a loan or form of credit, you will need a good rating to get the best interest rates. Take your time to save up for down payments while you make changes to your credit rating. This will help you pay less over the long term.
Sherry Rosen is an investment banker who has worked with a variety of financial firms. Recently, she has become quite interested in the trading of annuities, similar to those that are handled by the financial firm JG Wentworth. Follow her on Twitter @SherryRRosen