If you are new to the world of borrowing and lending, you must have realized by now that it is a difficult place to be unless you know the right steps to take. This world is a huge market of lenders and borrowers interacting with each other on a daily basis. This also requires a good understanding of financial security and profit through interest.
One of the most important things that a person must know before they start borrowing or lending is the significance of a credit score. The credit score is what will make or break your chances of acquiring a loan with lower interest. Your credit score is what displays your ability to pay back the money you have borrowed on time. Your credit score is a cumulative score of the amount you have borrowed and the number of times you have been able to pay it back without defaulting.
The lesser your defaults, the higher your score is. Let’s take look at all you need to know about credit scores:
This is what lenders look at first
The credit history is the first thing that lenders look at to judge the borrower’s ability to repay the loan. Credit histories are comprised of your bill payment history and the amount that you have borrowed in loans with successful or failed payments. The higher your credit score, the more chance you have of getting the loan approved and getting a lower interest rate from your lender.
A lender’s profit is based on repayments on time and with full interest, so it is obvious that before they lend the money to someone, they will want to do a history check on them. Credit scores are important to both lenders and borrowers, so keep your credit score as high as you can.
Credit report issuing companies have a history of the borrower’s behaviour
If you think you can get away with not paying back a loan company on time, think again. All the loan companies in the world give back a report to the credit checking companies who update your credit report as per the received feedback. A default or a missed payment will be part of your credit history and will lower your score significantly. You might have to take out other loans to bring your credit score up in case of a low score then.
Credit reports are very detailed about your borrowing history
Credit reports contain all forms of information that may facilitate a lender in identifying your borrowing behaviour. The first thing it obviously contains is your identification information such as name, address phone number. It also has information about your spouse and your social security number in there.
Next comes the information about your account. It contains the date you had opened the account, the account number, the banks that you are affiliated with and history of your loan amount. It also contains the limit on your loan amount and the payment history, stating whether or not you have followed through with all your payments.
There is also public record information such as monetary judgements, any child support payments that you may have missed, tax history and federal bankruptcy records. Your final credit score is generated through a secret formula that these companies use to generate the score. The formula is not made public so people cannot find ways to bump up their credit history without the proper procedure.
Credit reports can be wrong
You need to keep a strict check on what goes into your credit reports. They are made by humans and we are all aware of the massive error capabilities of humans. Even credit reports from big companies like Equifax and Experian should be monitored regularly to see that the information in there is accurate and in the case that you find an error, contact the company and inform them that the information is wrong. You might need a statement from your lender to confirm that the information entered is incorrect.
Don’t take these things lightly as your credit report is the main thing that keeps you from acquiring financial aid at the time of need. Keep a check at what goes into your credit report and immediately act on the things that are wrong about your payment history and borrowing amounts.
Credit reports can be acquired by other companies
In case you have applied for a job, your employer is also free to check your credit report if they want to see how you are doing with your finances. Service are also able to them to inquire about your credit report if they feel the need to. So it’s not just about lending and borrowing, your credit report is your whole history of dealing in money.
It is like a portfolio for people to see whether you are capable of what you claim or not. Keep your credit score high so you can save yourself from being denied a loan or a job because of it.
How to bring up a bad credit score?
If you have bad credit score, the only way you can bring it up is by getting a loan and paying it back on time. It is ironic that to improve the ability of you getting a loan, you have to get a loan and then pay it back on time. The problem is that people with bad credit score can only acquire certain types of loans that usually come with a higher interest rate, but they are short term loans so they don’t have to last long and you can bring your score up quick.
Most of these are payday loans, but other types of loans such as a co-signer loan or a cash advance can help you bring your score up. To compare what kind of loan you should get to bring your score up, visit https://quiddicompare.co.uk and see what the best suited loan is in a bad credit score situation.