Have you ever applied for a loan from a bank and wondered why you were quoted a certain interest rate? I remember when I applied for a loan to buy my first house. I had taken out a few student loans that had been paid off, but I was still making payments on my auto loan, and had a couple of open credit cards. Since I had never been late on a payment I assumed I would qualify for the lowest advertised interest rate.
After submitting my loan application, to my surprise, I wasn’t offered the lowest rate. “But why?” I asked the mortgage loan officer. I had never missed a payment on any of my loans or credit cards, and isn’t that what they should be concerned about? I was told my credit score wasn’t high enough to warrant their lowest rate.
After doing some research I discovered that one of the most important factors lenders take into account when deciding whether or not to extend credit, as well as what terms and rates will be offered, is the quality of the applicant’s credit score. And that a person’s credit score is determined by the person’s credit report.
A credit score is a numerical representation of your credit risk, which is essentially how likely you are to pay back the loan. Credit scores range from 300 to 850 (higher is better) and are used as a quick and easy way for lenders to objectively evaluate your credit risk. Most lenders require a minimum credit score before they will make you a loan, and create credit score tiers that are used to determine what interest rate they will offer. That’s why it’s important to have as high a credit score as possible before you apply for any loan, whether it is a private student loan, private student loan refinancing, or a personal loan.
The first thing to know is it takes time to improve your credit score. While you can ruin your credit score very quickly, it can take several years of good behavior to increase your credit score, especially if you have had a credit mishap like a missed payment. Below are six suggestions to help you improve (or maintain) your credit score.
Having a clean credit report and a high credit score can help you in many ways, including lowering the cost of borrowing, obtaining insurance, setting up housing utilities, getting a job offer, and more. If you are having trouble making your payments, be sure to speak with your credit card provider or lender before you miss a payment. It’s in their best interest to work with you to find a mutually agreeable solution, so you may be able to work out an arrangement that meets your needs.
For more tips on credit, money management, student loans, student loan refinancing, or personal loans, be sure to visit the Resources section of U-fi.com.