Why your credit score matters when getting a loan
It seems like now and days, you can’t even walk into a variety store and buy a candy bar without first getting a credit check. So, why is everyone from your landlord to your lender obsessed with your credit score? To answer that, lets have a look at what your credit score says about you, and why it matters when you are applying for a loan.
What your credit score says about you
Your credit score is more than just a number; it is, what many believe, to the best way to gage your fiscal responsibility. Your credit score is a numerical reflection of your credit history and just how good (or bad) you are with your money. Your score can range from 300-850 and fluctuates depending on a number of factors, including ability to make payments on time, amount of credit, and type of credit. There are many people who look towards this three digit number for an indication as to how likely you would be to miss payments on a loan or whatever it is you applying for.
Why do lenders look at your credit score?
So why do lenders want to take a peek at your credit score before agreeing to loan you money? Lenders, landlords, etc, want to ensure that their investment in you is worthwhile, and that they will get paid what they are owed. And, the easiest way for them to do that is to look your credit score. In their eyes, your credit score is a good point of reference as to how reliable you will be as a lendee, and will influence whether your not your loan application is approved and what sort of rates you will be offered.
How to improve your credit score
If you have been denied a loan, or been offered terms with high rates, chances are your credit score could be to blame. Here are some quick tips as to how you can improve your credit score, and put forth a more successful loan application.
Pay off over-due accounts – After 30 days of late or non-payment, your creditor will report your activity to the credit bureaus, which will have negative affect on your credit. The best thing you can do to fix your credit score is to get your accounts back into good standing.
Ensure bills are paid on time – To avoid having to play catch up and keep your credit score in good standing, make sure to pay all your bills on time and in full.
Close any unused credit – If you have any unused credit hanging around, close them. It is better to have one card that you use and regularly pay off, then multiple unused credit cards sitting around and affecting your credit score.
Be wary of how you use credit – To help prevent your credit score from dipping again, be careful with how you use your credit. Spend only that which you can afford, and avoid maxing out your card and making only minimum payments.