- A credit score refers to one’s suitability for receiving financial credit and is an indication of how financially responsible a person is
- Credit scores take into account your level of debt or if you have any unpaid bills
- It is a way for lenders to determine how much of a risk a borrower is
Your credit score is the number that indicates your creditworthiness. In the United States, credit scores represent the extent to which a person is suitable to receive financial credit and how likely they are to repay their debts. Banks, credit card companies and other lenders use credit scores to decide who is at risk of defaulting and who will be able to afford their repayments.
How Is A Credit Score Calculated?
A credit score reports the history of how you’ve paid your bills, how much credit you have and other financial circumstances in a three-digit number. Using the credit score, lenders can predict with some accuracy how likely the borrower is to repay a loan and make payments on time. To understand your credit score and how to improve it, you’ll need to know how it’s calculated. The number ranges from 300 to 850 and takes into account several factors.
Your credit score can give a lender a representation of your financial history and current circumstances. All loans, credit cards, and mortgage accounts that are open, as well as their start date and loan amounts, are included in the calculation of your credit score. Previous enquiry searches and footprints may also be included. Importantly, the score will weigh in any history of missed repayments or debt, including bankruptcy and CCJs.
A bad credit score rating is typically between 300-629
How Important Is My Credit Score?
Your credit score could affect you getting a mortgage for a house or dream car and determine whether you are accepted for a loan including payday loans, short term loans and also credit cards. Lenders will take your credit score in to account and perform a credit check when you submit a loan enquiry. This is an essential part of the loan request process, helping the lender work out whether you will be able to afford the loan repayments.
By evaluating your credit score and assessing your financial history, a lender can better view whether to approve your loan request. This does not mean that you will be denied a loan if you have a poor credit score. Pheabs is willing to consider loan requests with a range of credit histories. This means that you may be able to find a loan with Pheabs even if a bank has already turned you down.
How Is A Credit Check Carried Out?
A lender will ask your permission to access your financial information. They can then view your financial commitments and decide whether it looks like you can afford a loan. A lender can see your full name, date of birth, and electoral roll information, which confirms your current and previous addresses. A credit check gives the necessary financial information to your lender. The credit check is an automatic process, and you will not need to provide the information to the lender. Information can also be accessed on whether your identity has been used for fraud.
Will I Receive A Credit Check?
You will receive a credit check when you submit a form for any loan. It is an automatic part of the submission process and relates to everyone. In this way, lenders try to avoid the difficult circumstances that can occur when someone can’t afford to meet loan repayments.
What Defines a Good Credit Score?
Typically, a credit score of 700 or above is thought to be a ‘good’ credit score (taking into account a credit range of between 300 and 850). The average credit score is thought to fall between 600 and 750. A good credit score is an indication that you are reliable borrower. In general, a higher score conveys more confidence to lenders that you can meet the payments agreed in the repayment plan.
How Do I Know My Credit Score?
Regularly checking your credit score is a good habit to get into, whether or not you are applying for credit or loans. Checking your credit score does not affect your credit and, in fact, can even help improve your credit. Regularly keeping track of your credit score can alert you to potential risk factors such as errors or fraud. There are ways in which you can check your credit score with services such as the FICO website or Credit Karma. Many loan providers offer a credit check as part of their services.
What is a FICO?
A FICO Score is arguably the most widely-recognised and widely-used credit check service. Lenders use it as a metric to determine how likely you are to repay them. It is based on multiple factors including:
Payment History – whether you have paid past payments on time
Amounts owed – if you have any outstanding debt (both credit and loans)
Length of credit history – how long you have had credit
New credit – how often you apply for new credit and new accounts
Credit mix – the range of active credit products including installment loans, credit cards, finance company accounts, mortgage loans, payday loans, etc.
What is a Bad Credit Score?
A bad credit score is typically a score of 580 or lower (on a scale of 300 to 850). Bad credit indicates that borrowers have a history of unpaid bills, late payments or debt. Typically, a bad credit score can make it more difficult to obtain a credit card or a loan. However, some lenders have specific bad credit loans to make it easier for this borrower profile to obtain a loan.