What is a bad credit score? You have probably heard a lot about credit reports and credit scores, but do you know the difference between a good score and a bad score?
There is a reason why two different people that apparently have equal levels of income can have such different outcomes when applying for a loan. How much you make does not necessarily have anything to do with what your credit score is.
Your credit rating is very important. Not only for loan applications, but also for leases, credit cards, insurance rates and is some instances for job interviews. Even contracting a service in your home such as appliance repair or maybe a telephone or cable installed; anywhere you are expected to make monthly payments, a good credit report is essential.
In the United States, FICO (Fair Isaac Corporation) is the best known credit score calculator. How your score is figured is very complex. Basically it is calculated using all your financial information. Included in this information would be your credit history, missed or late payments, applications for loans or credit, etc.
Your FICO score is used to assess the likelihood of you honoring your commitment in paying off a loan or line of credit. Some companies are members of a credit bureau, and that bureau supplies them with the credit rating of applicants which is the basis of determining your qualifications of getting a high or low interest loan, or maybe not getting one at all.
There are three major credit bureaus in the Untied States. They are Experian, Equifax and Transunion. They each calculate a credit score in their own way. Sometimes your score may be higher with one bureau than the other. Your score is updated on a regular basis, and the higher the number, the better the score and the better chance of not only getting the loan, but getting a good interest rate also.
I have always thought it was a bit unfair to give the guy with the low credit score the highest interest rate, thus a higher payment and giving the guy who has no problem with money the low interest rate, thus a lower payment.
The reason for this is to insure the lending companies are well compensated in case of default by the loan recipient. A lower credit score assumes you are a worse risk than someone with a high credit score.
It you are looking for a loan, a car loan or a mortgage, it is best to go in knowing what your score is. That way you can be upfront about your situation. That will save a lot of time on their part and on yours. The lender will probably know right away whether you can even be considered for a loan. It will also keep the lender from checking you score thereby lowering your score with that process also. Knowing if you have a bad credit score or a good credit score may help you get the best deals available for you. It may also encourage you to set about improving your rating for the next time you need to borrow.