How does my credit score affect my ability to get a loan?
Your credit score plays a very significant role in your financial life, especially as it relates to your ability to borrow money.
It tells a lender whether or not you are eligible to get a loan. It also helps lenders ascertain if you are a good risk to bear.
Generally, a credit score is a number that falls between 300- and 850 that helps traditional lenders determine how efficient a customer’s creditworthiness is. Thus, the higher your credit score, the more trustworthy you portray yourself to lenders.
FICO is an acronym for Fair, Isaac, and Company, and a FICO score is the most common credit-scoring system that has been generally accepted by most traditional lenders today.
Below is an outline of the different FICO scores used by traditional lenders to evaluate your ability to get funding:
· 800 – 850: Exceptional
· 740 – 799: Very good
· 670 -739: Good
· 580 – 669: Fair
· 0 – 579: Bad
A person’s credit score is usually based on their ability to pay back debt in the past, the total amount of money they are currently owing in debt, and their credit history.
Traditional lenders generally use your current credit score or rating to determine if you can pay back a loan offer once disbursed.
How Does My Credit Score Affect My Ability to Get a Loan?
Having known what a credit score is and how it works, you can see that any little action you take on your finances can affect your current credit rating, either positively or negatively.
This, in turn, will determine if you can get a loan or not from a traditional lender.
That being said, if your current credit score is low, it makes it difficult to borrow money from traditional lenders.
And if you eventually get your payday loan application request approved, your corresponding loan terms will attract higher interest rates and a relatively strict repayment term.
This is basically to make up for your high level of default risk.
Similarly, if your credit score is high, you become friends will your respective lender(s).
This, in turn, usually attracts lower interest rates and more feasible repayment terms.
You must understand that a personal loan is not a grant!
It is not also a gift that someone hands over to you without prior expectations of getting something back in return.
Traditional lending is a business, and any default you make in your repayment settlement goes a long way in limiting the business activities.
Thus, taking a personal loan and not paying back on time negatively affects your credit score by reducing your credit score and making it difficult to get a loan next time.
On the other hand, taking a personal loan and paying it back on time affects your credit score positively and makes it easy for you to get a loan next time.
Factors like your income and other pending debts can also negatively affect your credit score.
This is because further delay in paying back your loan settlement can force a lender to take up legal actions against you to garnish your paycheck.
Thus, a certain percentage of your paycheck will be deducted at the end of each month to pay back the lender.
It’s also important to note that paying all bills on time and keeping your credit score balanced gives you a higher chance of getting the same day loan when you need it.
Factors that Affect Your Credit Score
The following factors will affect your current credit score and rating:
1. Paying bills on time
2. How much you are currently owing
3. Your credit age
Paying bills on time is one of the most significant factors that can greatly affect your current credit score and rating.
A default here can be so costly.
If you are passed the due date on your loan offer, it reflects greatly on your credit record for years.
Also, a person’s credit utilization is weighed almost as heavily as when they pay their bills on time. Thus, it’s always best you use less than 30% of your total credit limit when opting for a loan offer from a lender.
And finally, the more the number of years you’ve worked with a lender, the better your chances are of increasing your credit limit with that lender.