The credit score is an important factor when applying for a credit or a personal loan. This is why you look for the best credit score, so you can have the best loan conditions and pay it back without a problem.
After you read this article you will know:
- How the credit score is defined;
- How does the credit score work;
- If the credit score really matter to get a loan;
What Is the Credit Score?
The credit score is an assessment made by the lender, towards the borrower, depending on their behavior in the face of payment compliance. This is usually a number that varies between 300 and 850, which represents the creditworthiness of a consumer.
The higher the number on your credit score, the more you will be considered a potential borrower. This score is typically based on credit history; all the credits that you have previously requested, the number of open accounts, total debts, payment history, among other factors that are frequently taken into account for this.
Lenders look at the credit score to see if the person who is applying for the credit can really pay it.
The credit score of a person is also capable of determining the initial amount required to make a purchase. This purchase can be a smartphone, a house, or a car, it can even include service payments or property rentals. Lenders frequently review borrower scores for a good profile.
How is the credit score defined?
Scores are determined through credit scoring models that analyze consumer reports and then assign a score, ranging from 300 to 850, with the lowest number being the worst and the highest number being the best, or most favorable.
The two main scoring models are FICO and VantageScore. These will tell you if you have a greater or lesser probability of obtaining a loan. The factors that are taken into account vary depending on the type of score you want to know and they are not reserved to:
- Payment history.
- Total time of credit history.
- Last credit requested.
Applying for new credits can affect your score for the better or for worse, as it can open new accounts; this would reduce the age of your accounts and affect your average points.
How Credit Scores Work
This is a factor that can affect your financial life since it is a key factor when applying for a loan. If you have a score that is below 640, they are considered high-risk borrowers. This means that it is not a good profile from the point of view of the lenders.
On the other hand, if you have a score greater than 700, or greater than that, it is considered really good and it may turn out that you get the loan approved easier and perhaps with a higher interest rate, this depends on the lender with them that you have contacted.
Finally, if you have a score above 800, it is considered an excellent score, almost perfect, where the lender assumes that there are no risks. Therefore, they are offered better interest rates and also easier to make the payment.
How Often is your credit score updated?
The scores are based on credit reports, and these scores are not updated from time to time, but only when someone requests it.
For example, when you are going to apply for credit, you can add new information anytime you want. You can check your score for free through web pages.
Best Credit Score – Does Really Matter?
Does the credit score really matter? Or is it just an obstacle for banks and credit bureaus?
The answer is that they really do matter and that it is an important tool for lenders when making loans. Since loans are granted to unknown people, their behavior in relation to credits or finances is not known, and this is the only way you have to verify it.
As a borrower, our recommendation is that you always maintain a high score, this will make it much easier for you to obtain loans. You can also enjoy benefits that other people can’t because they don’t have a high score, like preferential interest rates.
Taking into account the factors that we mentioned above, you can have the highest score, and thus enjoy all the benefits offered by the lenders.