A person’s credit score is their history of credit report depicted through a three-digit numerical code. This code can help you get a loan or credit, but a bad credit score may not get you the loan. The credit score can be acquired from credit bureaus.
Credit scores are made so that it can predict the kind of risk the creditors will land into, if they approve a loan. While a bad credit score means that there have been several late payments or penalties issued in the name of the applicant, a good credit score means that the past credits have been paid on time or no penalties have been issued.
Creditors like banks, take your credit score to determine your eligibility for applying for the loan. Even credit card companies ask for the applicant’s credit score before issuing them the credit cards. These scores help companies or banks to decide which applicant is applicable for loan, for how much and at which rate of interest.
Credit scores are also used by landlords, insurance companies or government organizations. While landlords check the score to determine whether they want to rent you the apartment, insurance companies will use them to determine your eligibility for the insurance.
What goes into a credit score?
Companies, organizations or any other lenders look for or pay more attention to different information about your history. Here are a few of the details that make up your credit score:
Payment history: This includes your account history information: all the transactions, any credit, savings etc.
Amounts owed: This is the information regarding any amount you owe to other lenders or companies. This is important for the current lender because it tells them when or if you will be able to repay them.
Length of credit history: This is the total activity since you first opened the account, how many credits you have or how long ago was the credit issued etc.
Types of credit used: This is the kind of accounts you have for credit.
Your personal information like your address, ethnicity, age or income does not in any way affect your credit score. Though companies look for people with a good credit score, it does not guarantee credit or loan from the company. Many a time people are rejected even though they have a perfect credit score. This is because those companies are looking for the customer that fits their ‘requirement’. In other words, those companies issue loans to those who will yield them more profit.
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