You need to have an above average credit score when applying for any type of loan because it is your score that determines how well you will be received by the lenders. Just in case you do not understand the term credit score, well basically it is a summary of all your credit transactions compiled into a credit report.
Your credit report is a collection of information that the major credit bureaus like Experian, Trans Union and Equifax collect from the companies and lenders that you have dealt with over the years.
This credit information is mainly all your payments and their corresponding period, plus the type of credit and any outstanding debts. Your score gives lenders the opportunity to predict as to whether you will be a risk to them if you decide to apply for a loan from them.
A credit score is normally between the figures 300-900. The good credit score is approximately 800 whereas bad scores are around 300. The average American credit score for American borrowers is approximately 720. A lender can determine if you are a good credit risk just by looking at your credit ratings.
Your score is not just for getting your loan application accepted it will also get you the best interest rates that are available. The lower the risk to the lender, the better the rates they will give.
The higher credit score you have then a lender will give you the best rates possible. If your score is borderline average you will get a relatively lower rate of interest. If your score is above the average credit score then you stand a good chance of getting the best rates available.
But, if you have a low score then you will have to accept that your interest rates will be higher than the average score. If you have a lot of debts and you have a very low score then it is obvious that you will have a very high interest rate. You just might not even get a loan at all because the break even score that most lenders will accept is approximately 620.
Your score has a habit of fluctuating up and down. Therefore it is determined by what you do over a period of time. If you have a really bad score, then you will need to improve your score before you decide to apply for any form of credit. Every rejected application you make for a loan will be highlighted on your credit report and will be another black mark on your report.
Therefore it is imperative that you make every effort to improve your credit rating and get your score above the average credit score as quickly as possible.