What if you were told that, you might just have had better credit rating than Donald Trump at some point in time? Surprised? Well, it is possible. A common misconception is that a great income or vast wealth means that you can land a quick installment loan for bad credit easily. But income has little to do with your capability to land a loan.
Let us take a few minutes to understand credit scores. Monitoring agencies like FICO use the data in your credit reports & feed these into complex mathematical models to arrive at your credit score. Multiple factors in various weights affect the results such as your debt payment history, credit utilization on your cards, duration of credit history, number of new credit inquiries and combination of credit accounts. Now if you look closely, your income features nowhere here.
You might have a great job, 401k or substantial savings. But what most lenders look at, when lending short term loans is not how much you are earning, but your willingness to pay. Now you might have a significant paycheck but have you been using it to pay off your quick installment loan or spending it on new clothes? Are you dependent & reliable or are you negligent & irresponsible? Earnings can always fluctuate but a bad credit report diligently tells a lender, “that this man will not pay on time as he hasn’t for any of his previous loans.” And that is why you can have a bad credit despite a good income.
Here, the age-old teaching holds true- to live within one’s means. If you are a web developer earn $25,000 per year and have $90,000 in debt, you are probably nursing a bad credit. Similarly, imagine you have been without a steady source of income for a year or two and suddenly fortune shines & you get a network marketing job. While you are doing good now, your credit reports will still have your story of multiple delayed short-term loan payments in black & white.
Financial prudence is the key. If you are doing well now and have a good income source, put off all material gratification until later & work on that bad credit. Avoid taking any more short-term loans or credit card debts. Channel your earnings towards repayment and improve your credit score. You may not see the need now, but in case times get tough in the future, this judiciousness will go a long way for you. A good income can be used, to change a bad credit into good. Also, when the time of final decision making arrives, given similarly good credit scores, the loan would be given to the person with a higher income. As they say, it never hurts to have all your bases covered.
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