I applied for a loan and got turned down, apparently because I don’t have the greatest credit score.  It makes me feel like a deadbeat to get turned down, but I’m not.  It’s just that things are currently pretty tight where money is concerned.  I’ll scrape by for now, but what can I do to prevent this from happening in the future when I may need to try for a loan again?  I know some things to do to improve my credit rating, but maybe you have some ideas I haven’t thought of.

Feeling Strapped

Dear Strapped,

Don’t get down on yourself.  Rather, make a plan to improve your credit report and score.  As you pay off and pay down your debts, your credit report, and therefore your appeal to lenders, will improve.  You can get in control!

Let’s start with the basics:

Make a budget so you know where your money is being spent.  Pay your bills on time.  This will save you money on interest and fees.

Pay down debts.  A high debt-to-income ratio is cause for concern among lenders.  If your debt load is high and you are robbing Peter to pay Paul – transferring balances/paying bills with credit cards – lenders will not look favorably upon your application.

Stabilize.  Lenders tend to look more favorably upon applicants with long-term housing and employment situations.

Handle current accounts well.  Increasingly, lenders view your credit report in search of signs of trouble.  If found, they could cost you in the way of higher interest and fees.  So … never bounce checks, pay late, pay less than the minimum (pay as much as you can afford!), or max out credit.

Keep your head out of the sand.  If you’ve had an emergency such as illness, unemployment, etc., you must communicate that to your creditor, or your lender when you find one.  Often, they will work with you to make suitable arrangements.  Ignoring the bill/call will not make it go away.

Consider online banking – you can pay your bills with a click, no stamps or envelopes required.  You can also have your regular monthly bills debited directly from your account with automatic bill pay. 

Each of these steps will help you build good credit references with time.  Other things you can do include paying rent/mortgage and utility bills on time.  Even if you do have a number of negative credit references, start taking action today to offset them with good credit references.  Each month that you pay your bills on time or pay down your debt, you create a good credit reference, thus improving your score.  It’s never too soon (and almost never too late) to start digging yourself out of a financial hole!