You might be wondering just what a credit score is. In today’s day and age, borrowing money or postponing the payment of service can be difficult if you’re not aware of what a credit score is. So we’ve put together the most commonly asked questions about credit scores.
What Is A Credit Score?
Your credit score can be considered your reputation when it comes to borrowing money from various institutions. The better your credit score, the more money you can loan and the better the terms of that loan. Despite its importance, many people do not know how important a credit score is until they can no longer take any loans. The worst part is that credit scores can easily drop and getting it higher can be very difficult if you aren’t aware of how to do it. So it is important to understand what can affect your credit score before you start forgetting to pay your loans on time.
What Can Affect Your Credit Score
There are a number of reasons why your credit score can rise and fall. The quickest to come to mind when you think of falling credit scores are failing to pay loans and bills on time. There’s a good reason for this as well. Especially since you can consider your credit score as your reputation regarding being able to pay on time. The general idea behind a better credit score is making sure that you pay your bills and loans on time and avoid any form of debt. A loan or bill paid on time even slightly increases your credit score.
Late or missed payments, and excessive debt, on the other hand, will cause your credit score to drop far more than an on-time payment can increase it. So make sure to pay your bills on time for a better credit score.
What Your Credit Score is Used For
We’ve all had to loan sometimes in our life. It might have been lunch money from a classmate when you were younger, or a friend when you were short on gas money in college. Regardless of how you approach it, these are still loans as you’re expected to pay back what you borrowed. The moment you fail to pay these loans back, you’re less likely to be able to borrow something from them again. The same can be said of your credit score.
A good credit score is often the deciding factor of whether your loan will be approved or thrown into the bin. The reason for this is that various institutions use this to gauge how risky it is to loan you money.
A low credit score might mean that you’ll end up not paying on time or you might not even pay at all. The profit they’ll be making from your loan just isn’t worth the risk of them giving you that loan in the first place. Having a good credit score is important if you want to keep borrowing money from anyone at all.
There are a number of different ways your credit score can be used by various institutions and companies:
Banks and Other Financial Institutions
This is what first comes to mind when you hear the words “credit score”. These institutions will use your credit score to figure out whether you’re eligible for a loan and how much they’re willing to lend you. Your credit score will also decide how strict they will be with their policies regarding the money you borrowed.
Having a better credit score will mean that they’ll give you more leeway to pay the loan back. These can range from lower deposits and longer deadlines when it comes to paying.
A bad score, on the other hand, might have them be much more strict with how they lend you money. You’ll end up with a much larger deposit than necessary and your deadlines will be half of what it would be.
A terrible score will end up with your loan request being rejected as they might deem your loan too much of a risk.
Businesses that Offer Services
Financial institutions aren’t the only entities that look at your credit score when deciding on whether giving you a loan or service. Some of these include landlords, repair and construction services, and mobile companies. Just like financial institutions, the terms and conditions of your loan can easily be decided by your credit score.
A higher score will make it easier to negotiate lower deposits for their services while a lower score will mean that you have put in a much larger deposit than normal.
Who Decides On Your Credit Score?
There are three big names in the credit score landscape that decide your credit score. These companies are Experian, TransUnion, and Equifax. These three companies all have separate credit scores based on the FICO credit scoring system. The main reason why they have different scores from each other is that they have different criteria for deciding what your credit score will be. Another reason is that some institutions might submit a credit report to one of them, but not to the other two. Despite the differences in credit score, you can expect that your credit score with one company will be similar to the other two.
Another thing to take note of is that these companies sell your credit score information to the institutions or businesses that request them. This means that your credit score will never be hidden and will always be available for the world to see.
What Can You Do If Your Credit Score Drops?
A falling credit score can be a hassle to handle alone. It can take you months of hard work before your credit score can be as good as you want it to be. Luckily for you, we at HTP Enterprises Financial offer some of the best services out there to make sure that you can climb your way out of bad credit scores without all the hassle. We offer free consultations and credit score monitoring so you always know how much your credit scores have improved.