Are you a bankruptcy risk? Basicly, when a bank or loan company decides to grant you a loan, they will likely evaluate your bankruptcy risk. Ultimately, they are trying to predict the likelihood that you or your business will be unable to pay your debts. So, while you currently may have a good income and pay your bills on time, this assessment may reveal you are at risk of bankruptcy.
While you may be paying all your bills on time, a bankruptcy risk comes into play when an individual or business has little to no cash flow. This basically means a person is living paycheck to paycheck. So, in the eyes of a bank or other financial institution, spending 100 percent of your monthly income is poor financial management and budgeting. Even if a person’s debts are relatively low compared to their income, if you have a problem growing your savings, then some will see you as a functional risk, especially when applying for a major loan like a mortgage.
Nevertheless, there are ways to improve your situation:
1. Create and Keep a Budget – Getting your financial house in order is the best, first step to lessen your bankruptcy risk.
2. Pay Better than Terms – Paying only the minimum balance to creditors, especially credit cards, is sometimes a red flag for lenders.
3. Open a Saving Account – One sign of financial security is having and building one’s savings. The lack of a savings account signals being cash-poor.
4. Use Extra Funds Wisely – Avoid the temptation to use a large bonus, tax return or lottery winnings to splurge.
Essentially, even with a good income, a person who lives paycheck to paycheck is cash-poor and one bad day away from bankruptcy. Financial institutions know this and will factor it into their decisions. The more you can budget and save, the more you lower your bankruptcy risk.
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