Most people have heard of the credit score and the different kinds of credit reports. Many people know that these files are based on how much debt a person has and how that debt was paid back to the lenders. But there are other things that most people don't notice, but which can have a big impact on what is called "creditworthiness." This article looks at some of the factors that affect a person's creditworthiness that aren't as well known.
Consumers need to know that debt is the fuel that keeps the credit reporting machine running. If there was no debt, there would be no need to pay it back, and if there was no need to pay it back, there would be no reason to report. Every credit report is basically a list of all the debts you have and how you have paid them back in the past. It shows whether a loan was paid on time or whether it was paid late. It shows the consumer's income and how much debt he or she still has. It has personal information and any legal actions that may have happened during the time of the report.
As you can see, the cause is debt. The things that go into figuring out a person's creditworthiness are their debt and how they handle it during a loan and in general with all loans.
The issue of payments being made on time is very important. One of the worst things that can happen to your credit is if you don't pay your bills on time or at all. In many cases, these late payments can stay on the credit report for up to seven years, and during that time, lenders will see them as red flags and warnings.
The amount of debt a person has compared to their income is another thing that is used to figure out how creditworthy they are right now. It goes without saying that a person is thought to be able to handle more debt the more money they make. The opposite is also true: a person should take on less debt the less money he or she makes. But the ratio of debt to income can change, and there is no one limit that always applies to loans. In general, the lower the number needs to be to get a new loan, the tighter the credit market is (which means lenders are willing to take less risk).
Paying back loans on time is one of the best ways to improve your credit score overall. This shows lenders that you have enough money to pay your bills, and it also lowers the amount of debt you have on file. Your debt-to-income ratio will go down because your total debt is going down. This is a good thing.
Getting in touch with the lender when things start to go wrong is another way to improve creditworthiness. Consumers can include written explanations for times when they may have been in a tight financial spot. Lenders don't have to take these statements into account, but many will, especially if the consumer includes supporting documents with their statement.
