Have you ever wonder why your online application for credit can be approved in 60 seconds? Or get pre-qualified auto loan for a car without asking you how much is your income? Or why your interest rates on loans are different from the interest rates of your friends or neighbors?
Your credit scoring is the factor that affect all the above. It is your responsibility to main a excellent credit score. You will need to use it to get you a best available rate when come to apply for credit.
What is Credit Score?
Most of time credit score is refer as FICO score (Honest Isaac Corporation), it is a number based on the information in your credit file that shows how likely you are to pay a loan back on time, the higher your score, the less risky you are. You credit score is derived from three major credit bureaus: Exprian, Equifax and TransUnion. These 3 major credit bureaus will compile your credit report based on the information provided by the companies that gave your credit in the past. Based on the information such as your payment history, the length of your credit history and the type of credit your have and the amounts owed, the credit bureaus will generate your credit report. And based on your credit report, a number or scores will be assigned to you; this number will be range from 300 to 850. This magic number is your credit score, the higher the number the better you are.
When Your Credit Score Count?
Your credit score will play an vital part when comes to applying loans or other credits, it may save you a significant of interest if you are have excellent credit score. When you apply for mortgage, car loan, business loan or credit card, the lender or credit company will assess how risky you are as a potential borrower, the higher your score, the less risk you pose to the lender and the more likely you will get a better interest rate for application.
You will be offered at a relatively low rate if your credit score is above 700 and if your credit score is above 760, you will get the best available rates because you are the lowest risk borrower at this high of credit score. You loan will be approved with high loan rates if your credit score is below 600, and if your credit score is really terrible, you may be not be able to borrow at all.
Maintain High Credit Score
Now you know how vital your credit score is and when it becomes vital and you can use it as a tool to save cash. Hence, it is vital for you to maintain your credit score at high level. Things that you can do to increase your credit score include:
- Pay your bills on time
- Keep balances low on credit cards
- Don’t open a number of new credit cards that you don’t need
- Have credit cards – but manage them responsibly
In Summary
Credit score is not just a number, it is a tool that you can control and use to save cash. It will become vital whenever you need credits and it is an vital factor to be considered by any financial organization before they approve your credit application. Hence, keep your credit score all time high.
Cornie Herring
http://www.articlesbase.com/credit-articles/when-your-credit-score-become-vital-96403.html
Will the credit score lose importance because of the economy downfall?
Because of all of the foreclosures, job losses, credit card defaults, etc. during this economic crisis, will the credit score become less vital?
I was thinking, though- if a huge percentage of people’s credit score takes a serious hit, then will it be more the norm to have a less than perfect score, making it less likely to be turned down for something due to a lower score?
NO!!! In fact, your credit score is more vital then ever!! It’s a make or break choice at this point for everything that requires a credit score.
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I gave your question a star because the answer will be an vital aspect of the eventual recovery.
With so many people’s credit scores taking a hit during the crisis, changes will occur.
If credit scores end up being as vital, or especially more vital, than before, two major outomes will occur: 1, less credit will be available than before, and 2, this will result in "losers" in the system.
Less overall available credit would have both positive and negative aspects. On the plus side, fewer terrible loans would be made, reducing the chance for the same type of financial meltdown. On the negative side, fewer overall loans would curtail the credit markets, reducing economic growth on a macro level (this could be argued as a plus because it would help keep the economy from overheating) thus slowing down recovery, and impact the opportunities for many individuals.
Losers in the system would be those who otherwise would qualify for credit, but because of terrible marks caused by the economic crisis no longer qualify.
On the other hand, if credit scores become less vital, some other system would have to be used by financial institutions for making decisions on extending credit. They can’t just give out credit to everybody. I don’t know what such a system would look like.
I worked in the industry in 1979-1980, we didn’t use credit scores. I don’t reckon they existed then. Back then, credit reporting agencies were regional companies. They reported details of credit history, but didn’t have a composite score. Such a system meant those who make decisions on extending credit had to look at the details and make a judgement. The decisions were not automatic, and of course not instantaneous like today. I don’t believe we will go back to such a system. As a footnote, regional agencies meant that someone with terrible credit in one part of the country could go to another part of the country and start with a fresh credit history, as long as nobody bothered to check out other locations.
My personal belief is that what will occur will probably look something like what you hinted at in your additional details section: Credit scores will still be vital, but for many creditors a qualifying score may be lower than before. This won’t happen until the economy recovers, though.
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No. You obviously have no thought how they calculate credit scores. Look it up. It will make you want to go out and shoot the next banker you see.
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