The Relationship Between Credit And Lending

Good and Bad Credit

Credit Scores And Loans – A Match Made In Banking Heaven!

Do you ever wonder why your credit score seems to always be the key to your financial future? Why can’t you get a line of credit – for, say, a new car or to start a business – without a stellar credit score?

This is a great breakdown of how your credit affects your lending possibilities and why banks make the decisions that they do.Credit Score

Banks and credit card companies use a variety of different information to give you a credit score, which determines whether they will lend to you and at what interest rate.

Credit scoring can be based on information such as:

  • What you provide on your application form
  • What the lender may already have about you, based on previous accounts you have with them, and
  • Your credit report, which is held by one of three credit reference agencies – Experian, Equifax and Callcredit

You’ll also get a better credit score if you:

  • Own your own home and/or have lived at the same address for at least a year
  • Are on the electoral register
  • Have a good credit history by repaying other credit agreements on time, for example your gas and electricity bills
  • Have evidence of stability – for example you are employed rather than self-employed, you’ve lived at the same address, worked for the same company and had the same bank account for a long time
  • Are not connected financially, through your mortgage or joint bank account, to people with a bad credit score

How a poor credit score affects your ability to borrow

A poor credit score can mean you’re charged higher interest rates, given a smaller credit limit or simply rejected outright.

A lender doesn’t have to give you the interest rate they are advertising or that you see in best buy tables on comparison websites. This is called the representative APR and it only has to be offered to just over half (51%) of people applying for the product. You may be offered an interest rate that’s higher – this is what’s called your personal APR. You should check carefully what your personal APR is.
– via www.moneyadviceservice.org.uk

Why would my score differ between credit agencies?

When you’re working to raise your credit, it’s easy to become almost obsessive – checking as often as possible, comparing numbers. But if you see one score change and another stay the same, it might be disconcerting.

But don’t stress! Changes from one score to another makes sense once you understand how the system and reporting work.

The three major credit bureaus are Equifax, Experian and TransUnion. If you’re seeing different scores from each bureau, there could be a few reasons for this. Here are some of the most common ones.

  • The scores are from different dates. Since your score can change at any time, it’s important to compare credit scores from the same date.
  • The scores were calculated using different scoring models. We’ll get into this in the next section, but it’s important to know that there are many scoring models out there. When you compare scores among bureaus, make sure they are calculated using the same model. Even with the same model, your scores could vary because each bureau may store information or calculate the score a little differently.
  • The information in your credit reports varies among credit bureaus. This actually isn’t uncommon. Some lenders report to all three credit bureaus, but others report to just two or one or none at all. The information in your credit reports may also be updated at different times at each bureau. In other words, one credit bureau may be missing an account or other information that either helps or hinders your score.

Of course, it’s also a good idea to check your credit reports for errors periodically since an error could affect your score. You can check your TransUnion and Equifax credit reports for free on Credit Karma and your Experian report on www.AnnualCreditReport.com.
– via Credit Karma

How have you seen your lending options change as you’ve worked to improve your credit score?

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