A credit score is a numerical representation of your credit. Credit scores are checked by banks and financial institutions before lending money to borrowers. This helps the lender understand what kind of debtor you are. This gives the lender information about your repayment. Through this, lenders can find out how you manage your debt and how responsible you are towards your personal finances. Lenders check your credit history to check your outstanding payment or the default you made in repaying the loan. Defaults in paying outstanding debt or credit card dues can severely hurt your credit score. This is how credit institutions check your credit score for the following reasons –
- To know about your credit and your repayment pattern.
- To get a report of your current debts and past debts so that an effective decision can be taken.
- To determine the interest rates on loans.
Credit scores are issued by credit rating agencies. It is calculated using credit information provided by financial institutions and banks. Therefore, information related to this is being given through this article. Credit score can affect your life in the following ways –
A credit score can save money
You may not need credit at present, but you may need credit to meet future emergencies or other needs. In such cases you will need a good credit score to approve the loan without any hassle. Lenders and financial institutions check your credit score to understand your credibility. A low credit score means that you are not a reliable borrower and therefore banks may charge you a higher interest rate or reject your loan application. A good credit score on the other hand means that the lender can approve the loan to you at a cheaper interest rate, as you are a responsible borrower.
Credit score can affect home loan application
Each of us wants our own home. If your credit score is low, it can prove to be a blocker in home loans. A low credit score can affect home loan interest rates or may result in the rejection of your loan application. A good credit score guarantees that you are the citizen responsible for handling long-term loans such as home loans. Having a good credit score allows you to approach banks offering better services and get a loan at a cheaper interest rate. If your credit score is excellent, you can get a loan on better terms.
Credit score can affect credit card application
Are you among those who applied for a credit card, but the application was rejected? The most prominent reason for this situation may be a low credit score. Banks usually provide credit cards to their major customers who have a good repayment history. A high credit score usually increases the likelihood of getting a credit card. So if your credit score is average, then you have to work towards improving the credit score and then apply for a credit card.
Credit score can affect your business
Credit is the lifeline of every business, as it plays an important role in keeping the business operating. Credit score is an important reason for approval of business loan. You should check your credit score before applying for such loans. Business loans are usually approved by banks when you have an excellent credit score and good income. If banks are not satisfied with your credit rating, they can reject your loan application. On the other hand, a good credit history helps in quick approval of commercial loans.
Credit score can affect your career
Nowadays employers also check the credit score before giving job. Checking credit has become a part of the job screening process and hence a poor credit score can also affect your career. In some jobs, individuals have to work with a huge amount of money, so the employee’s background is verified. The credit score for such a job is checked and indicates how responsible and reliable the person is.
Your credit score can affect your life in many ways. If your credit score is average, work towards improving it. A good credit score makes your financial life easier and, when it comes to loans and repayments, proves you a worthy person. A good credit score indicates that you are a professional and can manage your personal finances responsibly.
