If you’re planning to make a major purchase anytime soon, you need to know more about how loans work, and that includes knowing everything there is to know about your credit score. If you do know what your credit score is or you do not understand how it came to be like that, you are making a mistake which could potentially lose your opportunity to get a loan.
So what is a credit score then? A credit score is a number that is used to assess the risk in lending you money. It is usually third parties, such as lenders that use these, and it is their way of seeing whether you are capable of paying off your debts. They need to look at the score and check whether it is worth the risk to give you a loan.
Your credit score will usually be three numbers, which typically range from 300 to 850, the higher scores indicating a better credit. Now the next question is, how are your credit scores calculated? Lenders usually look at your borrowing history for that. They will look at your past loans, for example, your credit card and check if you have successfully paid it. Another factor is the length of your credit history and also the types of credit you have.
It’s important that you always pay your loan on time. Once lenders see that you have a history of always getting penalty due to late payments, that’s already a data in the negative scoring of your credit score. They will be very meticulous in checking any negative information on your credit history in order to assess your credit score. Late payments are usually the number one problem that can cause a negative adjustment in your score. It does not matter if you just forgot about it and made the payment a day late, it can make a difference.
Another important factor is looking at the existing loans you have now. You may have a present mortgage loan but looking into buying your second home, or maybe you’re paying for a car and now you want to purchase a house. All these are taken into consideration, although it is not as important as your payment history.
When you have a better credit score, it can also mean a lower interest rate when you apply for a new loan. There are also some perks and benefits you can get such as higher spending limit on your credit card.
Take note of course that your credit score is not permanent, they are only a reflection of your credit history at that moment in your life. You can make your score better. You can hire someone to review your credit score for you. This way, if you want to get a mortgage, for example, you are able to see if you have a good credit score and a higher chance of getting the loan. You can also check out Altrua Financial for any assistance you may need not only with your mortgage but even with financial planning.