Before getting a loan from any lenders, they’d like to know if you are creditworthy and capable of paying back. This is determined by how well you settled your previous debts, judging from your loan repayment reports.
Your creditors base their decision to loan you on the strength of your credit score, and this determines how much money you are likely to be approved for.
This article covers the meaning of credit score and its impact on you.
Meaning of a Credit Score
Your credit score indicates how healthy your borrowing history is, using three digits issued by the financial body dealing with credit reports. It summarises your ability to adhere to debt payment terms, reflecting your reputation and creditworthiness.
You can get a full credit report through ClearsScore’s credit report, which allows you to view your credit score and what your creditors get when they access it. The number representing your credit score ranges from 0 to 1200. Any score below 500 is considered weak, while the best score starts at 833.
Several factors affect your score and can either strengthen or weaken it. If you are late in repaying other loans or paying your bills, your score gets negatively impacted and reduces your creditworthiness. Applying for multiple credits, a weak credit mix, and maxing out your credit card are also factors that can weaken your credit score.
To strengthen it, you must pay your debts and bills on time, ensure your credit card does not exceed its limits and dispute any errors appearing in your reports. You should also keep checking your score and credit reports to know whether it’s high or low so you can develop means for raising or maintaining it.
Impacts of Your Credit Score on You
1. Determines Your Creditworthiness
Your credit score shows if you can manage to repay the loan you’re applying for. Creditors compare your progress in repaying the previous debts, as indicated in your credit report, to estimate your ability to settle the instalments at the stated time, as well as your likelihood to default.
The higher your credit score, the more confident your creditor will loan you the amount you need. However, if the score is low, you are unlikely to secure a loan from reputable traditional lenders because they don’t trust your loan repayment ability.
2. It Gives You Access to Favourable Loan Packages
An appealing credit score helps you secure favourable loan products, credit cards in the premium category, and manageable interest rates. Lenders present you with various packages to select the most suitable one as they are convinced that you can handle the instalments by the stipulated period.
However, if your credit score is bad, you are likely to miss the good deals and fall on the list of borrowers paying high-interest rates while getting unfavourable mortgages, loans, and credit card loan packages.
3. It May Affect Your Career Opportunities
Your employer can determine your eligibility in handling the job, especially when it’s attached to various financial responsibilities. This is facilitated by your reports on consumer credit, influencing your employer’s decisions to hire, promote or raise your salary. If your credit habits are above average, you are set to secure better opportunities in your professional field.
Your employer can only access details of your credit history through your consented permission. While the exact score may not be displayed, they’ll view other information like missed or late payments, outstanding balances, student loans, among others, affecting their decisions on your job responsibilities.
4. It Affects Your Opportunities to Rent Property
Some property managers and landlords may require an average or above-average credit score before renting out an apartment to you. Most properties come with strict financial policies, and your eligibility depends on your credit score.
While you can still secure an apartment with a bad credit score, the process may be lengthy, and you may be pushed to rent a place that does not meet your specifications. The property owner can also ask for a security deposit as collateral for defaulted rent in the future.
5. Access to Credit Card Rewards
To access the rewards of credit cards, you need to have excellent credit scores. You are likely to receive cash-back incentives and the most outstanding introductory offers. Others inform you of pre-sales, exclusive concert invitations, and other premium rewards.
On the other hand, your credit card experience may be more demanding if your credit score is bad. Your maximum limit is lowered to a lesser amount, and you cannot access premium membership or the benefits mentioned above.
Conclusion
A high credit score positively impacts you, while a bad one limits your financial potential, presenting you as ineligible for credit. Upholding a healthy credit score is recommended for your financial advantage, as it enables you to enjoy premium offers and favourable loan packages. It also helps you secure rental properties and utility services faster because it reflects your creditworthiness.