There are so many reasons why we apply for a loan or credit cards. Maybe it’s for a new home, car, or education. However, before you are able to do these things, you need a special number called the credit score that will tell you if you can do this, and how much doing so might actually cost you. By summarizing how you paid your bills in the past, how much loan you currently have, how much your salary is and other things that might affect your creditworthiness, this number carries the great weight of determining whether you get your dream home or not.
To further explain, a credit score is the numerical equivalent or a statistical analysis that gives the lenders an idea about your creditworthiness, your ability to pay back a loan. So the lender’s decision on whether to let you borrow money or not all boils down to a calculated score based on your credit history. This credit history is typically obtained from credit bureaus that collect information from different sources. Such sources may include businesses, utilities, debt collection agencies and other institutions that you have had a relationship with. The data that they will provide the credit bureaus will show the kind of relationship that you built with them as a consumer. Your credit report is then made available upon request. And in that credit report, your credit score is a reflection of the credit bureau’s risk score that would appear as a number ranging from 500-850.
Being numerical, a credit score is therefore less subjective and exactly tells the lender what level of risk they might get into by letting you borrow their money. Knowing this lessens the lenders’ loses due to bad debt. To arrive at your score, the Fair Isaac and Company has set a standard criterion in calculating one’s credit score which is more commonly known as the FICO score. This score is then compared to the scores of other borrowers who have more or less the same profile and history as yours. A higher score means that the lender will shoulder less risk if they let you borrow money. So your credit score tells the lenders whether they can trust you with their money or not, at what interest rate, and at what credit limit.
However, it was only until recently that your credit score was actually made available for your viewing. Before, it was only the lenders and the businessmen who were able to view your scores since it was thought that the number won’t mean anything to you and the numbers might only cause confusion. All of these changed in 2001 when pressures from all sides prompted that the credit score be made known to the public. So now, you can check credit score in different websites like myFICO, VantageScore, and the CE Score.
Considering all that has been explained, you should very well know by now that your credit score does matter. A high credit score will certainly open you more doors of possibilities and convenience. |
