Have you ever wonder why your online application for credit can be approved in 60 seconds? Or get a pre-qualified auto loan for a car without asking you how much is your income? Or why your interest rates on loans are different from the interest rates of your friends or neighbors?
Your credit scoring is the factor that affects all the above. It is your responsibility to main a good credit score. You will need to use it to get you a best available rate when come to apply for credit.
What is a Credit Score?
Most of time credit score is refer as FICO score (Fair Isaac Corporation), it is a number based on the information in your credit file that shows how likely you are to pay a loan back on time, the higher your score, the less risky you are. Your credit score is derived from three major credit bureaus: Experian, Equifax, and TransUnion. These three major credit bureaus will compile your credit report based on the information provided by the companies that gave your credit in the past. Based on the information such as your payment history, the length of your credit history and the type of credit you have and the amounts owed, the credit bureaus will generate your credit report. And based on your credit report, a number of scores will be assigned to you; this number will be range from 300 to 850. This magic number is your credit score, the higher the number, the better you are.
When Your Credit Score Count?
Your credit score will play an important part when comes to applying loans or other credits; it may save you a sign of interest if you have a good credit score. When you apply for a mortgage, car loan, business loan or credit card, the lender or credit company will assess how risky you are as a potential borrower, the higher your score, the less risk you pose to the lender and the more likely you will get a better interest rate for the application.
You will be offered at a relatively low rate if your credit score is above 700 and if your credit score is above 760, you will get the best available rates because you are the lowest risk borrower at this high of credit score. Your loan will be approved with high loan rates if your credit score is below 600, and if your credit score is really bad, you may not be able to borrow at all.
Maintain High Credit Score
Now you know how important your credit score is and when it becomes important and you can use it as a tool to save cash. Hence, it is important for you to maintain your credit score at a high level. Things that you can do to increase your credit score include:
- Pay your bills on time
- Keep balances low on credit cards
- Don't open a number of new credit cards that you don't need
- Have credit cards – but manage them responsibly
A credit score is not just a number; it is a tool that you can control and use to save cash. It will become important whenever you need credits, and it is an important factor to be considered by any financial organization before they approve your credit application. Hence, keep your credit score all-time high.