Important Steps To Take Prior To Applying For A New Loan

If you are thinking about applying for a personal loan, that is great, but there is something that you should always do first before applying for any loan product. It does not matter if you are applying for a personal loan to consolidate debts or to make a large purchase, you should always check your credit score before applying for any loan, in fact I would say it is a rather essential step.

If you are worried about having to pay to check your credit report, Federal law entitles you to at least one free copy of your report every year from the three major credit reporting agencies, TransUnion, Experian and Equifax. You can also ask for your credit score from a lender if you have been turned down for credit or any insurance policy, since even insurance now makes use of your credit score. Some credit cards such as CreditOne and Capital One also offer free credit score monitoring services, which you can check before applying for a loan, if you have such a credit card.

There are many reasons to check your credit score before applying for a loan. For one if you do not check your credit score not only could you be wasting your time applying for a loan, you can also be making your credit score worse. Every loan product has a minimum credit score requirement, so if you do not know where you stand credit score wise, you could end up applying for a loan that you have no chance of receiving. Not only would you have to deal with the embarrassment of being denied the loan, you score can take a dive due to the hard inquiry. Hard inquiries stay on your credit for 24 months, but only affect for score for 12 months. Still 12 months is a long time for your score to take a hit, when that credit score dip is 100 percent avoidable.

Another reason to know your credit score before applying for a loan is that you can set realistic expectations. For example you can avoid loan scams if you know you have a low credit score, yet are offered a loan that seems to be good to be true, than it probably is. I have met plenty of people who have been scam victims, and trust me you do not want to be one of these people. When you know where your credit stands you also know what types of interest you should be receiving, and what kind of lenders will work with you.

The last reason to check your credit reports is also important is to figure out what areas are lacking or hurting on your credit report and then to work on improving it. For example if your credit usage, known as credit utilization is to high you can work on lowering that, which will improve your score. Other areas include payment history, credit age (not much you can do here, except keep accounts open), and account mix. Account mix is important, this means having a good amount of credit cards and, mortgages or signature unsecured loans on your credit report. Once you address any issues on your credit report, you can receive the interest rates that you deserve and desire.

Keep in mind that with any credit score you see, there will be variances with what your potential lender will see. This is because there are many lenders who use in house scoring models when deciding on weather or not to grant a personal loan. You should however ask each lender or find out from their website what their credit requirements are prior to applying for a loan, so you can avoid applying for loans that you do not qualify for.

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