Are you credit worthy?
Being credit worthy means that you are considered a good risk by lenders and financial institutions. In other words, you have a good credit score and a solid financial history, which makes it likely that you will be able to pay back any loans or credit that you receive. A lender determines if you’re a good credit risk by looking at your credit report and analyzing your credit score. Most people have a credit score anywhere from 300 to 750, but scoring models go as high as 850. The closer your credit score is to 850, the better credit risk you are. In general, anything below 650 means you’re on shaky ground.
Having good credit is essential in today’s world. Acceptable credit will generally get you what you want, but bad credit can be the kiss of death. If you want a house, you need a mortgage. If you want a reliable car, you’re likely going to take out a loan. Anytime you apply for credit, the lender is going to pull your credit report to determine your creditworthiness. Not everyone is a good credit risk—but there are things you can do to make sure you become one.
There are a few key ways to determine if you are credit worthy:
Check your credit score: Your credit score is a three-digit number that reflects your creditworthiness. It is based on your credit history, which includes information about your borrowing and repayment habits. The higher your credit score, the more credit worthy you are considered to be. You can get your credit score from each of the three major credit bureaus (Experian, Equifax, and TransUnion) or from a credit scoring company such as FICO.
Review your credit report: Your credit report is a detailed record of your credit history. It includes information about your credit accounts, such as credit cards, loans, and mortgages, as well as your payment history and any delinquencies or defaults. Review the credit reports carefully, looking for any errors or debt that doesn’t look familiar. If you spot any, you should dispute them with the credit bureaus immediately. By reviewing your credit report, you can get a sense of your overall financial history and identify any areas that may be affecting your creditworthiness.
Monitor your debt-to-income ratio: Your debt-to-income ratio is a measure of how much of your income is going towards debt payments. A high debt-to-income ratio can be a red flag to lenders, as it may indicate that you are overextended and may have difficulty paying back any new loans or credit. To calculate your debt-to-income ratio, add up all of your monthly debt payments (such as mortgage payments, car loans, and credit card payments) and divide that number by your gross monthly income. A ratio of 36% or lower is generally considered to be healthy.
Make timely payments: Your payment history is one of the most important factors that lenders consider when determining your creditworthiness. By making all of your payments on time, you can demonstrate to lenders that you are reliable and responsible when it comes to managing your debts.
Following these few steps, can help you take control of your financial situation and improve your creditworthiness. This will make it easier for you to secure loans and credit in the future and may even help you get better terms and interest rates.
About the Author
Jeff Boe is a graduate of National American University, a Board-Certified Credit Consultant, President of Boe Credit Consulting, and Executive Director of the Willard and Margaret Boe Financial Literacy Project. He is a credit expert who has successfully rehabilitated his own credit profile and, since 2005, has been working with consumers to improve their own credit files and their financial literacy.
In 2018 he started Boe Credit Consulting in order to help even more consumers improve their financial literacy and to help them eliminate the financial burden of negative credit.
For more information, visit www.BoeCredit.com
©2020 Boe Credit Consulting / Willard and Margaret Boe Financial Literacy Project