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Credit Score Impact On Availing A Loan

Author : Ask Bill

A credit score impact may be considered as the impact/effect one’s credit score might have on one’s credit worthiness. Credit worthiness would be dependent on the credit report of the person. The most important part of credit report would be a report that describes in detail one’s financial health. Nearly every financial aspect of a person would be recorded. Financial aspects that would be recorded would be the person’s payment history, the amount he or she currently owes lenders, the total time period of the credit history, the number of credits held and the number of new credit accounts held or applied for. In total, nearly every cent earned and spent in the form of credit would be noted. Depending on these data, a three digit score would be arrived at using an algorithm developed by The Fair Isaac Company (FICO) called the FICO score. The FICO score would be typically in the range of 300 to 850. Generally, a credit score of 660 and above would be treated as favorable by banks, financial institutions and other lenders for any kind of loan applications.

The credit score impact might be seen in the way the rate of interest at which one might be advanced a loan would be affected. In other words, lower the credit score, higher the rate of interest of the loan and vice-versa. So, it would be prudent for an individual to checks his or her credit report and score and try to fix the issues that might be negatively impacting the score. Even a small improvement in the credit score might mean a lower interest rate. It would be advisable that one checks one’s credit report at least once a year to check if the recorded financial details are in order and to ensure that any discrepancy or unrecorded payments made are rectified that might improve one’s credit rating.

A bad credit score may thus be considered as one that might mean a higher interest rate for the individual while seeking any kind of loan. Any FICO score below 660 might be considered as a bad credit score. The individuals who fall in this category might be better off if they would take concrete steps to improve their credit rating before availing a loan. One way to improve on the credit rating might be to go on a budget. If that might seem impossible, seeking the advice of a qualified and trustworthy credit counselor might be a logical step. Some of the methods of improving one’s credit rating might be to regularize payments on the debts already incurred, reducing the outstanding on credit cards by making larger payments, trying to reduce the number of credit cards one holds, using credit card balance transfer option, or even debt consolidation.

Any loan availed on a bad credit rating would be more expensive as the lender might feel that there might be defaults by the debtors. The terms under which the creditor might be willing to extend a loan might be stringent. The fees and other charges might be higher than what might have been charged for a good credit rating. The foreclosure terms might also be quite stringent and a deferment in payment of even a single payment might negatively impact the debtor. It might seem that there might be no help for bad credit rating. However, there might be financial institutions who might be willing to consider such high risk customers. Before settling on a lender, it would therefore be prudent to shop for possible lenders and to try to improve the credit score. It would be advisable to make thorough checks and conduct online research on the companies advancing such loans before using any of the services provided by them.

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Tags:   credit score impact, bad credit score, loan

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Submitted : 2010-10-13    Word Count : 633    Times Viewed: 328