A person's credit history is used by creditors when deciding if they should loan him money, as well as by landlords considering renting to somebody and even prospective employers thinking of hiring an employee. Banks and credit card companies use a credit report to check a person's payment history, to determine if he pay his bills on time.
Importance of Having a Good Credit Score
Having a number of loans in recent years that are paid on regularly with no late payments will increase one's credit score rating, which will appear on a credit report. However, there are times when unexpected things happen, and people find themselves unable make a payment, or several payments, on time. If this happens often enough, debtors may find themselves in default on loans, car notes and even mortgages. As this happens, the credit score rating starts to drop lower and lower.
How to Read the Credit Score Rating Scale
Many people may have checked their own credit score, and not understood the scale that is being used. There are several numbers involved, each with a different meaning. Therefore, to understand a person's credit score, one needs to understand the rating.
The credit score number will be between 300 at the very low end, to 850 at the highest end. Any score below 500 is viewed as lenders and banks as being very risky. 850 is the best score that can be achieved, while 300 is the lowest. Anything above 700 will give the borrower very good chances of obtaining loans at desirable interest rates. The scores are calculated by various bureaus, using specific formulas. The FICO score is the most popular of them all.
Anything above 700 will be considered a good score. With this high score, the borrower should find getting credit with a good interest rate to be relatively easy.
A credit score between 450 and 650 could present the debtor with some challenges when seeking a loan, and the borrower will have to try to improve this number. Because the person be considered a high risk, it can be difficult to get a loan or credit card. The debtor will probably be required to provide some form of collateral. There will also be a higher interest rate as the lender will want to offset the risk of lending.
A credit score below 450 will require more extensive work. It is unlikely that the applicant will qualify for loans or credit of any type.
Reference: moneycentral,msn.com By Liz Pulliam Weston
Unnikrishnan k - I am a 25 year old freelance writer, graduated in Electronics Engineering . I have been writing for last on year for Digitaljournal and ...
Join the Conversation