Most people turn to credit when they are caught up in an emergency financial need that they need to address. Apart from emergency situations, credit is also important when you want to accomplish things such as buying a home, leasing or purchasing a car, or when you want to get approved for a credit card.
This means that everyone has their own history of specific financial transactions in their name that usually add up to an overall score. Credits agencies keep a record of your credit repayment history and use this information to generate a number that is referred to as a credit score. The credit bureaus then allow lenders to use your score in establishing the risk of loaning money to you.
Here are some things that you need to know about your credit score.
Your Credit Score Is Based on Five Core Factors
The five factors that decide your credit score are credit utilization, payment history, account mix, average credit age, and inquiries. For instance, your payment history usually accounts for about 35.0% of your credit score. Settling your monthly bills on time will help you improve your score.
Your Credit Score Determines Whether You Qualify for a Loan or Not
Most banks and other lending institutions look at your credit score when deciding whether to approve your loan request or decline it. The same thing happens when you apply for a credit card. Most people are denied loans since they have a poor credit score.
Your Score Also determines Your Loan Interest Rates
Typically, lenders will look at your score before deciding the interest at which they’ll lend you money. Most of them tend to charge higher interest rates to borrowers, who are perceived to be risky, i.e., their credit score indicates that they have a poor repayment history. However, a high credit score can save you a lot of money since you’ll borrow money at the best interest rates.
You Can Still Get a Bad Credit Loan If You’ve Got a Poor Credit Score
Although a bank may decline to approve your loan request if you’ve got a poor credit score, this doesn’t mean that you’ve run out of options. A bad credit loan is a type of personal loan that is usually offered to borrowers with bad or no credit score at all. These types of loans are offered online, and you only need to provide your personal information and you’ll be approved to get a loan. You can use a bad credit loan to rebuild your credit score.
You Can Get Your Credit Score and Reports Free
Did you know that you’re legally entitled to a free draft of your credit report(s) from each of the three credit agencies? Equifax, Transunion, and Experian each owe you one free credit report annually.