Many aspects of society are based upon debt. This is why it is important to maintain a healthy credit score. Many businesses require a credit report prior to extending services or products to you. In some instances, your credit score can even make a difference in your ability to find a job.
Credit score affects the location of your residence and your mortgage payments
Prior to purchasing a home, mortgage lenders will want to be assured you will not default on a home loan. If you have a poor credit score, the mortgage lender may consider lending to you too risky of a proposition. However, if the mortgage lender does approve you for you a loan, your credit score will play a significant role in determining the interest rate you will be charged for your home loan. Having bad credit will usually result in a higher interest rate which means a larger monthly payment for your mortgage. In the worst case scenario, your loan application may be denied due to your poor credit history.
Renting a place to live can be challenging with a bad credit score
Even if you are not in the market to buy a home at the moment if your credit score is bad it can still impact your living situation. Landlords routinely use credit reports to determine whether or not to rent to an applicant. They basically consider your lease as something like a loan and therefore use your credit report to judge your level of financial responsibility. Landlords want assurances that you will be able to pay your monthly rent on time. Without a strong credit score your rental application, like your mortgage application, may be denied by the landlord.
Credit score may affect your employment prospects
It is quite common for employers nowadays to check your credit report when accepting an employment application. Employers are looking to see if your credit report demonstrates your financial responsibility. If your credit report reflects a lack of financial responsibility the potential employer may think twice before hiring you. For instance, the employer may decide that the amount of debt you are carrying is too high for the salary of the position offered. Other employers will look at your credit score prior to giving a promotion or raise. This is particularly true in executive or finance-related positions.
A bad credit score can keep you from starting a business
Many of us have aspirations to eventually start our own business. On the other hand, most startup businesses will need a significant amount of money which you may not have at the moment. If this is the situation, you will probably need to apply for a startup business loan. However, lenders will require a good credit score to lend you money to start your business.
How is your credit score calculated?
Now that you understand how important your credit score can be, you will want to do everything you can to maintain a healthy credit history. If you already have bad credit then you will want to take actions to fix that problem. However, before you devise a strategy to do so, you will have to understand how your credit score is calculated in the first place.
The FICO score is the most commonly used measurement for a credit check. The FICO score, created by the Fair Isaac Corporation, is not the only measurement used for a credit report, however since it is the most commonly used it provides a good basis for formulating your strategy to improve your credit score. Since the FICO score is proprietary to Fair Isaac the exact formula used is not publicly known. However, the FICO score breaks down to the following weighted considerations: amount owed (35%), payment history (35%), type of credit used (10%), length of credit history (10%) and new credit (10%).
Obtain an installment loan to help your credit score
The largest portion of your FICO score is based upon your payment history. This means making payments on time plays a significant role in improving your credit score. Therefore, you may want to consider a personal installment loan at Western Shamrock. This will allow you to demonstrate your level of financial responsibility. A consistent payment history will eventually result in a higher credit score.
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