All You Need To Know About How Credit Scores Help You Obtain A Loan

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Over the last few decades, loans have been one of the most commonly used financial resources in the world. Trying to apply for a loan is very straightforward, but being accepted on the other end is a different type of game. Loans may help people overcome their financial difficulties, or drown them in debt.

Credit scores are among the most important indicators of whether or not an individual is qualified for a loan. Credit ratings inform lending institutions about the financial conduct and creditworthiness of the borrower.

Once you have decent credit ratings, the lenders will not see you as a risk. But then in the other direction, if you do have low credit ratings, the likelihood of receiving a loan will decrease significantly. 

Establishing a powerful credit rating ensures that your loan application for any form of loan, such as a payday loan, secured loans and unsecured loans, will be accepted and will also enable lenders to lower interest rates.

Financial institutions and lenders test your creditworthiness by conducting credit checks, which allow lending institutions to determine whether or not you possess the potential to repay the loan. 

There are two forms of credit searches that are carried out as indicated below.

Soft Credit Search

Soft credit searches are the form of reviews where the lending institution just looks at the borrower’s credit record from the exterior. The lending institution will not conduct an extensive credit check. But the biggest reason people choose this form of credit review is that it doesn’t affect their credit rating. Yeah, you read it correctly, soft credit checks will not affect your credit rating in any manner, nor will the check be reported in the credit file.

Hard Credit Search

Hard credit searches are the form of credit searches in which the banking firm conducts a detailed background check on the individual’s credit record. This thorough search would allow lenders to identify whether or not the borrower has the potential to repay the loan and also to take action on the basis of that fact. 

The drawback, however, is that a hard credit check leaves an impression on the individual’s credit file and may impact her or his credit score.

Credit Scores

As stated earlier, credit ratings are the biggest factor of whether or not an individual is approved for a loan. Credit ratings are nothing more than a series of numbers, which is a scale grade established by credit rating agencies. The United Kingdom has three credit agencies, namely Experian, TransUnion and Equifax. 

Here are the three credit rating agencies with their respective scoring scales

Equifax Credit Score Scale 

Score         Rating

0-279              Very poor

280-379           Poor

380-419           Fair

420-465          Good 

466-700           Excellent

TransUnion Credit Score Range

Score        Rating

0-550             Very Poor

561-565         Poor

566-603         Fair 

604-627         Good

628-710         Excellent

Experian Credit Score Scale

Score         Rating            

0-560              Very poor

561-720           Poor

721-880           Fair

881-960          Good

961-999           Excellent

Each lending institution utilizes a different scale to assess the candidate’s credit score. In addition, the preservation of good credit ratings must be of great significance. If you have strong credit ratings, the likelihood of borrowing are substantial, and you’ll even get loans at a lower interest rate. This is something you’d want to take into consideration

Mentioned below are some variables that affect the credit rating of the person.’ 

  • History of Loan Repayment 
  • Loan recently obtained 
  • Form of loan secured 
  • Complete amount of the loan payable to the lender 
  • History of credit card payment

How To Boost Credit Scores

With that have been said about getting strong credit ratings, it’s also crucial to know how to boost your credit rating. But don’t make a mistake, the cycle of improving your credit rating is a lengthy one. It will consume a lot of effort and time, but it really is worth all the effort. You can secure any form of loan with excellent credit ratings. 

But once again the issue of maintaining a low credit score is very common among people.

As previously mentioned, there seem to be a variety of ways through which you could boost your credit ratings, primarily depending on the effort you’re willing to make. 

Evaluating your credit file is also a really useful thing to do. You get the choice of obtaining a credit report once a year and. You may receive a credit file from any credit provider. Evaluating these credit reports in a comprehensive way will make you realize where you’re falling short when it comes to credit ratings.

Making your loan repayments would most definitely help you raise your credit rating. When you manage your loan payments in a timely manner, it essentially shows the lender that you’re a trustworthy individual, which is quite critical when it comes to getting a loan. In addition, it will also enable you to establish a financial discipline.

If you do have many loans to repay, then think about going for a debt consolidation loan, it will enable you to consolidate all the loans, and you would only have to repay one loan, but utilizing a debt consolidation loan may impact your credit score.

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