Are you familiar with credit scores? Have you checked your credit scores recently? Or maybe you don't know what credit scores are and how they can affect you when loaning? Now that you are reading this article, the answers that you seek will be discovered here. We will discuss or go through what credit scores are and its significance when it comes to loans.
Importance Of Credit Scores
In every financial institution, lenders use specific rubrics to check the borrower's financial position, like your general info, employment history, savings, and income. The reason for this is to see whether the borrower is credible to be loaned by the institution. That is why having a good credit score, and history will be a factor for your loan to be approved.
If you have a bad credit score right now and you're planning to loan, it will likely be rejected. Before applying for a loan, improve your credit score first to ensure your application will be successful. To know how to improve your credit score, check out Crediful.com, as it contains everything regarding the basics of personal finance.
Understanding Credit Scores
A credit score, in general, is a range of numbers between 300-850 that will describe a customer's credibility. Basically, the higher the credit score, the greater potential the lenders can see. With that being said, it is the biggest factor that a lender will consider in making the final decision to offer a credit.
If you're wondering what data is being used in calculating your credit score, the data that are being used are coming from your credit report, which contains information about your debts and financial history. To put it in simpler terms, if you have a bad and inaccurate credit report, your credit score will also be below.
Analyzing Your Credit Scores
Now you understand what credit scores are, it's time to know how to analyze your credit scores. Knowing this will make you mindful of your scores and work on them to improve. Again, credit scores are a range of numbers between 300-850. To be able to know if your credit is bad or good, below are some of its typical ranges:
Interpretation of Credit Scores
❖ Excellent credit: 781 and above
❖ Good credit: 661-780
❖ Fair credit: 601-660
❖ Poor credit: 501-600
❖ Bad credit: 500 and below
Factors That Would Affect Your Credit Scores
Credit scores are affected by your credit history. These factors can either give you a positive or negative effect on your scores directly. It is important to know and be aware of these factors to prevent you from having problems and low credit scores when the time comes.
Have you been paying your bills properly? If it's a yes, then most likely your credit score would be high, but if not, then time to change your habit of paying these. Payment history is potent for your credit scores as it can act as a predictor of whether the borrower would pay its debts on time as agreed if they would approve its loan.
This shows how liable the customer is when it comes to its obligations. Examples of accounts of payment history are credit cards, retail accounts, installment loans, and mortgage loans. To improve this, you must pay your bills on time and keep track of your payments. If you make this a habit, your credit scores will surely increase.
If you have a habit of abusing your credit cards, then that would become a factor why your credit score is low. Credit Utilization refers to the ratio of your outstanding credit card balances to your credit card limits. It calculates how much of your available credit you're utilizing.
To improve your credit score in this aspect, having control of your credits will be a big help. Examples of this are setting limits to your credits so that you will be alerted when using them. Another one can be by setting your credit limit higher or match your payments up to date to prevent your credit scores from being affected.
Now that you know what credit scores are and how they affect your loan, then you now understand why credit scores are important in loaning. Make sure you check your credit scores and interpret them to know if you have good or bad credit, then improve your credit history to increase it. Keep in my mind, when it comes to money, you must be responsible for how you use it and be timely to prevent future problems.
Rebecca Nelson is a freelance writer and an occasional Huliq.com contributor.