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Credit Scores And What They Mean |
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Written by William Holland Jr.
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Thursday, 29 July 2010 08:13 |
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To decide whether or not to give someone a loan, a bank will always use a system of credit scores to figure out whether or not the customer can pay, and if so, what the maximum is that they can safely loan them. These scores are statistically produced from the customer's previous credit records.
by WilliamHollandJr.
To decide whether or not to give someone a loan, a bank will always use a system of credit scores to figure out whether or not the customer can pay, and if so, what the maximum is that they can safely loan them. These scores are statistically produced from the customer's previous credit records.
Whether you need a bank loan to buy a new home, want to purchase a car, need money in an emergency, or for anything else, having a good credit score is of the utmost importance to your success.
Checking in with a credit reporting agency before applying for a loan is a very good idea. You can get one free credit report per year, so it won't cost you much to make sure you have a good credit score. Banks and other lenders all use the same credit reporting agencies, and once you know your credit rating you can more easily go about improving it. Knowing your credit scores will give you peace of mind when applying for credit.
Something that may seem strange is that someone who doesn't use credit at all doesn't actually have a very good credit rating. This is because there is no real proof of whether or not they can pay. The best way to deal with such a problem is to apply for a small account like for a cellphone, or credit card and then go about keeping it all up to date. Having an exemplary payment record on this will be very important, or you could do your credit rating more harm than good.
You must always, as regular as clockwork, pay your bills. Your credit score is firmly based on your payment records and how many times late payments were received. By doing a statistical analysis comparing your payment record to a list of similar cases, a score is calculated. Several factors influence the score, including how often payments were made later than 30 or 60 days, total failures and cases of repossession.
Don't apply for too many credit cards, or for loans too often in one year. Banks tend to think that if you keep on borrowing money that you are in financial difficulties. Getting one loan to cover a bunch of stuff that you want to do or buy is sometimes a better idea than a single loan for each.
Something to bear in mind is that if your credit scores are only a point or two below a certain level, it could mean that your much needed loan won't be approved, or if it is, the interest rate could be much higher.
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