You have been told at all times to take good care of your credit score and that it will help you get lower interest rate on your loans, but you haven’t been told how the credit score is used by the lenders. Credit score helps in the growth of your financial status and impacts your financial health.
Credit score is used for the following purposes:
- Private lender and banks
- Employers and landlords
- The amount of credit you have taken.
- The amount that is repaid.
- The times you have missed the repayment.
- The interest you have paid.
- The total count of the credit applications you have filled out.
- If you have defaulted in the payment and settled the credit, it will be recorded in your credit report.
Financial institutions use the credit score to determine your creditworthiness. If you are applying for a credit card or a loan, the lender will pull out your credit information before deciding if the loan or the credit card should be given to you and to also decide the rate of interest.
Yes, employers and landlords also check your credit score. If you are getting through a company that is getting you a job in finance, then your credit score will be checked to consider if you are to be given the job or not. Landlords on the other hand look into your credit score to determine what deposit amount that is to be taken from you.
Now you might be wondering why the lenders and the employers and the landlords refer to your credit score. Along with your credit score you also get a credit report that includes all your credit information and how you have dealt with debt and the repayment of the loan. Your credit report includes:
The lenders, banks, employers and landlords can determine how careful you are with a credit and if you are taking it seriously and dealing with them in the right way. The lenders and bankers will only give you a credit card or a loan if you have managed to repay all your credit on time and without missing any payments. If you have settled on a loan or missed any payments, then there is chance that your interest rate will be higher to bear the risk. The landlords on the other hand check your credit score and report to see if you are making all the payments on time and after which you have enough money left to make sure you can pay the rent on time. They also check your credit report to decide the deposit amount to take from you. In the event you have a lower credit score, your deposit amount may be higher to cover the risk that the landlord is taking. He will make sure that the deposit amount will cover for the rent that you might miss.
Your credit score and your credit report is the rundown of your financial obligations and instalment data. You can review your credit history and build a budget in a way that will help you tend to all your financial requirements and then splurge on other things. It is important to clear out your debts first and to maintain a good credit score. It will not seem like you need to go out of your way to fix your credit score, but in the long run, when you have an urgent need for credit, the credit score will determine if you will get the credit and it will also determine the rate of interest that will be offered to you.