3 Things You Can Do to Improve Credit Worthiness

Credit worthiness is a measure of three elements of your financial profile: your previous financial responsibility, your current financial stability and your future financial prospects. Improving these three areas is the key to getting a good loan at a low interest rate. In reality, it takes years to build your credit worthiness. However, there are some immediate steps you can take in each of these areas to improve your current status in the eyes of lenders. 

Improving Past Records of Debt

There is not much you can do to erase a default or delinquent payment from your credit report. However, there are two primary ways you may be able to improve a record of previously recorded debt. The first way is to discover and dispute any credit reporting errors. Check your credit score by going straight to the source (Experian, TransUnion, Equifax) or by electing a third party credit check service. When you check your credit online, there is typically a simple method for filing any dispute right on the website. Use this option to dispute potentially incorrect information.  The second technique is to explain any past credit problems with a statement provided to the credit bureaus. The statement can be attached to your report so future lenders will understand why you had credit problems in the past. Valid reasons include illness, divorce, joblessness and other financial emergencies.

Increasing Current Financial Profile

Your current financial profile is an analysis of your debt in comparison to your income. There are several steps you can take to improve this ratio. First, reduce your debt by paying down any debt you can in the short-term. This typically means paying off credit cards and charge accounts. If you can pay off a large installment loan without penalty, your score will increase dramatically. Second, look to increase your reported income each year. You can do this by securing a better job or promotion or simply taking a second job if needed. Adding your spouse's income to any application, called a joint application, can provide for an immediate boost in credit worthiness. Adding a cosigner may do the same, though this can reduce the impact a good loan will have on your credit score.

Providing for Future Stability

Lenders do not want to loan to borrowers who do not have good prospects for continued income in the future. As such, they look for career stability as an indicator of potential problems. Borrowers who have been in the same job for two or more years are considered the most stable. Self-employed individuals or independent contractors present the greatest concerns. If you do not have a stable career, you can use a history of tax schedules to show your income has remained stable over time. You may also be able to provide average bank account balances to show you have high liquidity month-to-month. A lender will need actual proof of the stability of your income. Anything you can do to show you will not suffer a significant drop in earnings during the life of the loan may help raise your credit worthiness in the lender's eyes.

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