Credit is the staple diet of American society. If you’re looking for one then you need to know certain bare facts before applying for the same. Whether it is for a credit card or car loan or mortgage, lenders wish to know if you have the ability to repay their loan. For this they needs to check your credit score.
What is a credit score?
Credit score is a three digit number that will indicate to your lender whether you’re credit worthy or not. This number is calculated by credit bureaus like Fair Isaac Corporation (FICO), Transunion, Experian and Equifax. All these bureaus independent of each other collate data from merchants, establishments and businesses about your payment history. Using a mathematical formula of all the data received along with how much credit you are enjoying presently and how much you had in past they arrive at a three digit number. This number is your credit score.
Generally credit scores range from 300-900. If you’ve a 600+ then it is considered to be a good score to look for unsecured loan. If your score is below 500 then you need to improve it. Here I would like to mention that a low credit score doesn’t mean you’re not eligible for credit. Extending credit depends solely upon the lender. Maybe he may ask for a higher rate of interest from you to compensate for your score.
If you’ve a 700+ credit score then it shows that you’re in excellent financial health. Lenders will fall over each other (figuratively of course) to give you a loan. Also you will have the flexibility of bargaining the interest rate. A 700+ credit score will open wide doors to financial prosperity. You can buy the Jaguar you always wished to possess and a home for your family.
A poor credit score doesn’t mean that you need to despair. Every month your credit score will change as your purchases and income varies. There is no need to panic. Approach it rationally and see to it that all negative entries are erased from your report.
Facts about credit scores
There is a myth that credit score will drop if you apply for new credit. Well, it doesn’t drop much. Unless you’re applying for multiple credit cards from several lenders your score will be unaffected. If you’re looking for mortgage or auto loan then your score doesn’t get affected much. How many ever times you ask for a loan the query is treated as single entry.
In the same way credit score is equal to genders, race, religion or nationality. It doesn’t vary according to minority status. It is the same for all. Under Equal Credit Opportunity Act (ECOA) all are same and no lender can show discrimination to anyone.
Remember that checking your credit report often doesn’t decrease your credit score. It is only when you apply for new credit that it’ll drop by 5 points. That is not much.
Also each bureau gives out a credit report according to their own method of calculation. Hence there is likely to be some variation in scores. It is not much; may be around 40 to 50 points. Your lender will check all the reports and arrive at an average score for you.
Conclusion
By keeping your credit card purchases low and using the same accounts for a long duration of time you can maintain a healthy score. It is not a mammoth task to maintain a score. Prudent purchases and planned living will help you to maintain healthy credit and lenders will not hesitate to loan you the much needed amount. So, what are you waiting for? Log on to the internet and order for your credit report. Check it and apply for a loan or start repairing your credit. Cutting the shirt according to your size helps to remain out of debt. So, curb the urge to swipe your plastic money and lead a trouble free life.