If you already have some loans, or if you just started learning information about loans, you probably heard about a concept such as a credit score. All creditors and financial systems have a different approach to checking the borrowers. Some of them audit both the credit history and the credit score, which are important but the second one still has more value. Your credit score characterizes your reliability as a borrower in the eyes of the lender.
It is important to understand the main point of this term: why it is required and what it says about you as a potential borrower. This article will help you estimate chances of getting personal loan approval and avoid wasting priceless time.
Different Credit Scores and Their Meaning
The numbers in your credit score will show you what you can expect when searching for a loan.
Very bad (less than 500): it is the case when a person can literally count on nothing applying for a loan. From the perspective of the lenders, your score means that you are not a reliable borrower and you will hardly pay the money back.
Very low (500-579): for people with such credit scores it is also almost impossible to get a loan, but this is not a reason to give up. There is always an opportunity to improve your situation.
Low (580-619): it indicates that giving you a loan is very risky. And those who can offer you a deal, most likely will not be able to offer good terms. People with such credit scores usually get loans with a high-interest rate and not the most favorable conditions.
Average (619-680): people, who have such a score, can look around and consider various proposals. Most often, the loan offers will be on more or less favorable terms and the interest rate will be only slightly higher than for people with a good credit rating.
Good (680-719): such a score in the financial environment will mean that you are a good candidate and most financial organizations will offer you their services.
Very good (720-779): it is almost the top of the credit rating. Getting a new loan will not cause any difficulties and the borrowers with this credit score can count on very good terms
Excellent (780 and above): people with a credit score above 780 are the less risky and the most desirable clients of any bank and other financial services. Usually, they do not get a refusal and they can count on the most favorable terms and interest rates.
Factors that Affect Your Credit Score
There are a few factors that are making your credit score as it is. If you want to improve it, you should know more about your credit report and score basics, and pay attention to the following:
The payment history (35%). It is an indicator of how you paid the loans back, whether you did it on time and whether you followed the terms of the contract between you and the lender.
Debts (30%). It shows the size of the debt of the person. If your debt is more than 35% of the credit limit, then this has a negative impact on your credit score.
Credit Length (15%). This factor depends on how long you have been a credit cardholder. The longer you have it, the better for your score.
New Inquiries (10%). Each credit score check negatively affects it. So, if in a short period of time you put several applications to different banks, then this will have a negative impact on your score.
Diversity (10%). Several credit accounts that you use without delays and for which there are no debts make your credit score increase. In the eyes of the lender, you look like a responsible person who successfully manages their accounts.
How to Improve the Credit Score
If after reading this article you realized why your applications for personal loans or small business loans were rejected, it is not a reason to get discouraged. After all, the credit rating can be improved and it is not as difficult as it may seem. You just need to manage your existing loans and credit cards more intelligently, make the monthly payments on time and pay off your debts. Yes, restoring the credit score is not a quick thing to do, but it will help you in the future to take out loans on the most favorable terms when it is needed.
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