A Report for Lenders on the Significance of Credit Scores
Do you know what a high credit score means? When applying for a loan, whether it be for a house, car, or anything else, most of us know that a high credit score is crucial. But what does it mean to talk about a person's "credit score"? Lenders use credit scores, which are based on your credit report, to determine whether or not to extend credit to you.
You should know that a credit score and a credit report are two separate but related concepts. The credit bureaus have calculated a numerical value for you that represents the risk they perceive in taking you on as a debtor. This figure is known as your credit score. The opposite is true with credit reports, which contain an overview of your credit score and related information. The combined report and score will be used by the majority of financial institutions and even a large number of employers to establish your eligibility.
You might already be aware that the acronym FICO stands for "credit score" when discussing its significance. Fair Isaac, the business whose software is used to determine your score, is the inspiration for the name. Many different types of financial organizations routinely use this figure, which is determined by looking at your credit history.
Requests for credit, bankruptcies, payment histories, credit utilization, and open accounts are all details that can be found in a consumer's credit report. Your FICO score is not included in the credit report. Don't forget that each year you have a single opportunity to see whether your credit history has changed by requesting your report. Please review your report for any mistakes or miscommunications that may require correction.
You may obtain a free copy of your credit report from each of the three major bureaus: TransUnion, Equifax, and Experian. Your FICO score is available from many different places, including the internet.
A consumer's FICO score may be anywhere from 300 to 850. Loans for large purchases that can't be paid all at once, such cars, houses, or other costly products, are more readily available to persons with higher credit scores. The interest rate you pay for a loan is directly proportional to your FICO score. To sum up, building and keeping good credit would greatly benefit you. A lower credit score increases the likelihood of loan denial and, even if approved, will result in a higher interest rate. The amount of a loan that you are eligible for is also dependent on your score. You are eligible for more loans if your credit score is higher.
Remembering these fundamentals of what a credit score is can help you immensely. While an occasional late payment won't have much of an impact on your score—particularly if your credit history is pretty long—constant delays, skipped payments, excessive debt, or volatility might have a negative impact.
