When you apply for credit, no matter what type it is, a lender or loan broker will want to know the risk of lending you money, or the chances that they will be repaid. Credit scoring consists of a comparison of all your accounts that are reported to the credit bureaus as determined by the information in your credit file.
Features
The highest a FICO credit score can go is 850. The lowest is 300. The better (or higher) your credit scores, the better an interest rate you will get. The score and your DTI (debt-to-income ratio) also lets the lender know how much you can afford to borrow and at what rate of interest. For instance, if your credit rating is between 500 and 589, and the current market rate of interest is between 7 and 15-percent, you will likely get the higher rate. If your credit score, however, is between 720 and 850, you will likely get the lowest interest rate allowed at 7-percent, or you may even be offered a discount on that rate for an exceptionally high score.
Considerations
Personal loans, loans for college and other types of loans can either be collateralized or non-collateralized. Collateralized means the loan is secured by property or some other type of security that has worth and value, such as a house (home equity loan or line of credit), a boat or a car; or stocks, bonds, etc. Non-collateralized means the loan is made on the borrower's signature only and no collateral is needed or required. Having a low credit score will not necessarily stop you from getting a loan, but it will determine your rate of interest.
More Considerations
A credit score is calculated using mathematical models formulated to analyze your debt-to-income ratio and your repayment habits. Your payment history is compared with thousands of other consumers and then averaged out. Factors that help determine your score are: how you made previous payments, what your outstanding balances are, how long you have held the credit, the number of inquiries in your file, the type(s) of credit you tend to use most and how much credit is available to you based on your debt and income.
Prevention/Solution
Prepare for a credit check by pulling your own report and reviewing it before anyone else does. You can also use it to help fight identity theft or dispute errors. Keep in mind that lenders and other creditors may also use your credit report to determine your eligibility for a job, whether or not you qualify for apartment, home, or car leasing or simply to verify who you are and where you live and work.
Effects
Credit scores cannot determine whether you are a good credit risk or a bad one. Bad things do happen to good people who once had good credit. About 58 percent of the population has a credit score in the 700 to 850 range. Credit stipulations are adjusted to accommodate the other 42 percent of the population. Typically, people with scores below 500 will not be approved for a loan at all.
0 comments:
Post a Comment