When talking about credit score, people easily get stressed and although it sounds very good, not everyone has a good credit. The credit score is a topic of much controversy and concern, as it is one of the most common ways for people to get ahead financially when building a business or getting some kind of personal loan. For this reason, here we give you all the information you need about this important, much-desired topic.
A credit score is a 3-digit number that is meant to represent your credit risk, or how responsible you are when it comes to honoring or defaulting on a loan or service provided.
This credit score is calculated based on information from your credit report, which lists all of your current and recent credit accounts.
To be more precise, your credit report is like your resume: it’s a list of your current and recent credit accounts and how responsible you’ve been in paying them on time. Your credit score summarizes all that credit history information into a single number.
Most companies and lenders use the Fico score from your credit report to check your ability to pay and responsibility. FICO credit scores range from a low of 300 to the highest score of 850.
Lower numbers represent a higher likelihood of defaulting on a loan, which is considered bad credit, making you unlikely to be a candidate for consideration, while higher numbers represent a lower likelihood of defaulting on a loan, which is considered good credit and a potential candidate.
Benefits of having a high credit score.
If at some point you are interested in investing in some kind of business or buying a car or a house, well, it is quite convenient to have a good credit score, that is; a high credit score.
Since your credit score is what lenders or some entity use to check if they should lend you money or their services and decide the terms of such action.
If you do not have a credit score or credit history, unfortunately lenders do not have a way to check your creditworthiness. Therefore, they may see you as too big of a risk and reject your credit application, which is often the case for many people.
On the other hand, a great credit score means you are a low-risk borrower, which means lenders can offer low interest rates and other benefits, such as credit card rewards.
So take into consideration that a low credit score represents a high risk to lenders, as it shows that you are more likely to default on a loan.
Did you know that to compensate for the higher risk of default you pose by having a low credit score, lenders or banks charge higher interest rates and fees to those with poor credit scores, if they are willing to extend credit. Which is not in anyone’s best interest, is it?
Your credit score not only affects your access to credit and the costs associated with using credit. But it will not be taken into account when it comes time to need a loan to service.