Taking out a loan nowadays is just as simple as withdrawing cash from an ATM. Loans are often accessible, quick, and hassle-free transactions. However, these conveniences are not what every potential borrower experiences.
Sometimes, filing for a personal loan is taxing and adds more weight to their financial burden. Little do they know that one factor is a primary reason for these differences.
The convenience for some borrowers and the inconvenience of others all fall to their credit score. It is a familiar term, but not everyone understands its importance.
Here, we will explain why your credit score matters and other helpful information.
Credit Score in A Nutshell
A credit score is technically a numerical expression of a potential borrower’s creditworthiness. It is the result of a credit report analysis based on a person’s credit files sent to credit bureaus.
Credit scores are represented by three-digit numbers. According to the FICO scoring model, the lowest credit score is 300, while the highest is 850.
Where You Can Check Your Credit Score
Checking your credit score is possible online. There are many resources where you can check your credit score, as there are many credit reporting agencies that either sell the report or give it for free. You don’t have any excuse for not being able to check your current credit score.
If you plan to take out a loan in the future, consider checking your credit score. This is the best way to check your credit history before making a move.
Moreover, it will be helpful if you are conscious of your previous loan applications. A bad credit rating can affect your ability to get a loan.
Bad Credit Score VS No Credit Score
You might have already heard some financial experts say, ” No credit score is as bad as having bad credit.” The truth is both have negative implications for potential borrowers.
Borrowers with bad credit can still apply for a loan and be eligible for approval. However, high interest rates are expected, and your lender will probably conduct a thorough investigation of your credit history.
This is possibly true as these borrowers are potentially tagged as high-risk, and lenders are wary of them.
However, no-credit-score borrowers, often called “credit invisible borrowers,” face the same challenges as those with bad credit scores.
Lenders and banks consider them potentially high-risk borrowers because their credit history is indeterminable due to the lack of evidence and reports.
Rebuilding Your Credit Score
If you ask various financial experts, having no credit score is way better than having a bad one.
It is easier to start from scratch and make a good first impression than rebuild a bad reputation.
For borrowers with bad credit scores, you need to be patient with lenders if they are skeptical during your loan application. Also, removing bad habits when you take out a loan, such as missing scheduled repayments, will be helpful.
You can also check your credit reports further, as there’s a possibility that errors are being made. You can file a dispute report on the errors found, as incorrect details can significantly damage your score.
For borrowers with no credit history, you need to be careful with your every move since some lenders will be wary of these borrowers. If you get approved, make sure you pay on time. That’s what matters most. Moreover, only take out loans that you can handle.
To build a good credit score, try small, short-term secured loans or open a secured credit card, which is easy to start with.
Just make sure to choose an issuer that reports all your credit history to every major credit-reporting bureau.
When Does A Credit Score Not Matter?
Well… hardly ever! The truth is your credit score matters almost all the time. You are entitled to better benefits if you reach a good score of 700 and above. Your good credit score can be used as leverage to get into great deals.
Even employers sometimes look into the credit scores of job applicants.
Takeaway
Even though taking out loans has become easy, potential borrowers experience it differently because of differences in credit scores.
Credit score plays a significant role when you plan to take out a loan. It is the decisive factor in whether or not you will be approved for your loan.
Every borrower should remember that a good credit score lets you experience better benefits. Taking out a loan requires diligence, and one should be responsible for handling and managing it efficiently.
