How Your Credit Score Could Affect Your Loan Application
Most people don’t know what a credit score is nor how a negative credit score could affect their loan application and finances in general. That is until they try to apply for a loan, buy a new house, or attempt to make a big purchase. The credit scoring system will evaluate how well you manage your finances. This score will help the lenders evaluate your risks, and if you are eligible for a new credit card or loan application.
Each citizen is appointed a credit score. If you have a spouse, you will still both have an individual credit score, but if you are both a co-signer of a loan, both of your credit scores will be evaluated by the lender. The lender will then scrutinize these scores to see how much of a risk you are as a borrower, and if you’re qualified to avail their loan services.
If you have a poor credit score, you will have a hard time getting approved for a loan. However, if you are approved for one, you may have to pay more than you will borrow.
Benefits of having a good credit score
Yes, you can still survive with a bad credit score, but it doesn’t mean that you should stay that way. Putting up with a bad credit score is hard and everything will only get harder. With a good credit score, your finances will be stress-free and easy to handle. Here are some reasons you should maintain excellent credit performance.
A good credit score will give you a low-interest rate
As mentioned earlier, even with a bad credit score, you will still be approved for a loan, albeit with a high-interest rate. As you might have guessed, the interest rate that you will get on your loans has something to do with your credit score.
With an excellent credit performance, you will get the best deals there are on your loans, like having a low-interest rate, lower charges, and additional fees.
Also Read: Smart Ways to Improve Your Credit Score
Better chances of getting approved for a loan
Most people who have a poor credit score will mostly get rejected of their application for a new line of credit or a mortgage. Even if you have an excellent credit score, there is still no guarantee that you will be approved since a credit score is not the only factor the lenders will evaluate. They would also see how much is your debt, how you handle it, and your income. But take note that having a good credit score will give you more chances of getting approved than having a bad credit score.
More room for negotiation
With a good credit score, you will have more leverage on the terms and conditions the lenders will give you. You can also negotiate with your lender if you compare their offers and another lender’s attractive deals. However, if you have a bad credit score, you will have little to no chance of changing the terms given to you by your lender.
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Higher limits for your loans
Your credit score and your income can heavily influence the amount that you can borrow from your lender. One of the factors needed to get you a good credit score is how well you pay back your lenders, and how quickly you finish paying your debt.
With this, the lenders will see that you are trustworthy enough to be entrusted with loan money. However, if you have a bad credit score, your borrowing limit will entirely depend on your lender.
Components of a credit score
- Payment history: It is a detailed track record of how you handle your debt repayments. This covers all of the loans you have applied for in the past, as well as your credit cards, mortgages, car loans, students, etc. All of the things that may hurt your credit score will also be listed here.
- Length of credit history: This component refers to how long you had credit and how you handled it in the past years. The better you are at handling all of your payments in the past, the better your credit score will turn out.
- Type of credit used: This component tackles all the credit you have used in the past. This covers all the credit cards you have used, installment loans, mortgages, retail accounts, etc. This will also include the lender you have transacted with online, like CreditNinja.
Responsible management of your credit score goes a long way, especially if you want to have a robust, secure, and stable financial resources. By paying all bills on time, taking care of your debt as fast as you can, and spending wisely on necessary things, you will save more money. This will significantly improve your credit score, leading to saving more money for better investments in the future.