Banks use credit scores to determine whether they should loan someone money, and if so, how much they can safely loan them. Through careful statistical analysis and comparison of your official credit records, specific numbers are calculated for you.
A good credit record is very important when applying for a bank loan, regardless of whether its a home loan, car loan, an emergency loan, or a personal loan for pretty much anything.
To make sure you have a good credit rating, you should apply for a credit report at a credit reporting agency. Often you get one free rating per year, so it needn’t be an expensive exercise. Most credit providers use the same agencies to get your scores and once you know your credit rating, you can easily get help to improve it, or if it’s okay you’ll have additional peace of mind when applying for a loan.
One strange problem is that someone who is in the habit of not borrowing money at all often has a very bad credit score, not because they can’t repay the money, but because there is no actual proof either way. A good way of combating this is to get an account for something, whether a credit card or a cellphone account, just so that there is some record of your reliability. It definitely helps to keep all payments up to date, or it could worsen your scores.
You must always, as regular as clockwork, pay your bills. Your credit score is firmly based on your payment records and how many times late payments were received. By doing a statistical analysis comparing your payment record to a list of similar cases, a score is calculated. Several factors influence the score, including how often payments were made later than 30 or 60 days, total failures and cases of repossession.
It’s never a good idea to apply for credit or loans too often in a one year period. Banks consider continuous borrowing to be a sign of financial difficulty whether it is, or not. It’s a much better idea to get a single loan to cover several projects, than single loans for each different one.
Something to bear in mind is that if your credit scores are only a point or two below a certain level, it could mean that your much needed loan won’t be approved, or if it is, the interest rate could be much higher.
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