Before obtaining a loan from a lender, the latter would like to know if you are solvent and able to repay. This is determined by how well you have settled your past debts, judging by your loan repayment reports.
Your creditors base their decision to lend to you on the strength of your credit score, which determines the amount of money you are likely to be approved for.
This article covers the meaning of credit score and its impact on you.
Meaning of a credit score
Your credit score indicates the health of your borrowing history, using three numbers issued by the financial agency responsible for credit reporting. It summarizes your ability to meet debt payment terms, reflecting your reputation and creditworthiness.
You can get a full credit report through ClearsScore’s credit report, which lets you view your credit score and what your creditors get when they access it. The number representing your credit score varies from 0 to 1200. Any score below 500 is considered low, while the best score starts at 833.
Several factors affect your score and can strengthen or weaken it. If you are late in repaying other loans or paying your bills, your score is negatively impacted and reduces your creditworthiness. Applying for multiple credits, a low credit mix, and maxing out your credit card are also factors that can lower your credit score.
To reinforce it, you must pay your debts and bills on time, ensure that your credit card does not exceed its limits, and dispute any errors that appear in your reports. You should also continue to check your credit score and reports to see if it’s high or low so you can develop ways to raise or maintain it.
Impacts of your credit score on you
1. Determine your creditworthiness
Your credit score indicates whether you are able to repay the loan you request. Creditors compare your progress in paying off previous debts, as shown on your credit report, to estimate your ability to pay installments when shown, as well as your likelihood of default.
The higher your credit score, the more confident your creditor will be to lend you the amount you need. However, if the score is low, you are unlikely to get a loan from reputable traditional lenders as they don’t trust your ability to repay.
2. It gives you access to advantageous loan formulas
An attractive credit score helps you get great loan products, premium grade credit cards and manageable interest rates. Lenders present you with different packages to select the most suitable one for you as they are confident that you can manage the installments on time.
However, if your credit score is bad, you may miss out on good deals and end up on the list of borrowers who pay high interest rates while getting unfavorable mortgages, loans, and credit card loans. .
3. It can affect your career opportunities
Your employer can determine your eligibility to handle work, especially when it relates to various financial responsibilities. This is facilitated by your consumer credit reports, influencing your employer’s decisions to hire, promote or raise your salary. If your credit habits are above average, you are poised to secure better opportunities in your professional field.
Your employer can only access your credit history details with your permission. Although the exact score will not be displayed, they will see other information such as missed or overdue payments, outstanding balances, student loans, among others, affecting their decisions about your job responsibilities.
4. It affects your opportunities to rent a property
Some property managers and landlords may require an average or above average credit score before renting an apartment to you. Most properties are subject to strict financial policies and your eligibility depends on your credit score.
Although you can always secure an apartment with a bad credit rating, the process can be long and you may be pressured into renting accommodation that does not meet your specifications. The landlord can also ask for a security deposit as security for unpaid rent in the future.
5. Access to credit card rewards
To access credit card rewards, you must have excellent credit scores. You are likely to receive cash back and the most exceptional introductory offers. Others let you know about pre-sales, exclusive concert invites, and other premium rewards.
On the other hand, your credit card experience may be more demanding if your credit score is poor. Your maximum limit is lowered to a lower amount and you cannot access premium membership or the benefits mentioned above.
A high credit score has a positive impact on you, while a bad one limits your financial potential, presenting you as ineligible for credit. Maintaining a healthy credit rating is recommended for your financial advantage, as it allows you to take advantage of premium offers and advantageous loan packages. It also helps you secure rental properties and utilities faster because it reflects your creditworthiness.
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