Credit Score: Is it Time to Check Yours?

Have you been weighing up your options for taking out credit? Or have you perhaps been baffled by why you have been turned down for a loan or card?

Whatever the case, it is always great to be more knowledgeable about lending and how you score with credit companies. We have created an article that is aimed at helping you to learn more.

What are the most common forms of consumer credit?

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Credit is a luxury for many. It is a means of affording what we otherwise couldn’t. It allows us to be able to purchase products by getting an advance on the cash needed in order to pay for them.

One of the most common forms of consumer credit is a credit card. You can use the cards in order to buy the things you need — then, later on, you pay the company that issued you the card. This is a great way of being able to purchase items you would otherwise never be able consider buying.

This is a means of purchasing items can also have an adverse effect, as you could  end up going out of your limits with borrowing, so it is an area that needs great responsibility.

Non-Installment Credit

This is a way of getting credit that is either secured, or unsecured. It depends on the company that provides you with the credit to begin with. It does not come with a set figure for the monthly repayments, and instead is due in one lump sum, for the full amount that was borrowed. When this type of credit is issued, it is usually done so in a short timeframe, usually, say in the space of one month.

Installment closed-end credit

This is a form of credit that allows consumers to buy multiple items, or one particular item. Car loans are closed-end credit, as they do not go beyond the price of the car. Also, the borrower can pay back the credit in installments over a period of time instead of paying it back in one lump sum.

Revolving open-end credit

Consumers usually find this kind of credit via credit cards. Consumers have a certain amount of credit available at their leisure, and a set amount has to be paid off each month. This credit never closes, unless the company shuts down the account, hence the credit is ‘revolving.’

What does my credit score mean?

Your credit score is a figure  calculated via how likely you are to be offered loans to companies. It is the figure a lender will assess when asking for a loan.

So how is this calculated? It looks at your payment history, the amount you owe, and the length of time it took you to pay off previous loans. It can affect a lot of things, like how much interest you must pay to the lender.

It can be the difference between getting a loan — or even being rejected for a loan.

Basics of credit scores

Your credit score helps lenders assess the risk that you pose to them if you borrow cash. Many different credit scores are on offer — one popular one is Vantage Score, which was developed by three popular credit lenders, Experian, Equifax and Transunion.

Another is FICO, which ranges between 300 and 850. Vantage Score credit reports have a range of between 501 to 990. The higher you score, the better chance you have of getting a loan. A high score means that you are low risk to the lender.

An ‘Excellent’ score: 720-850

If you are lucky enough to have a credit score in this range, you are considered very responsible when managing repayments.

You’ve had no late payments, and all of your balances on credit products are low as well. As a result, you could be offered lower interest rates! This is what you need to aim for.

‘Good’ credit score – 690 to 720

If you have a ‘Good’ credit score, credit companies will deem you responsible with your cash and repayments. Your balances will be low, and you are a good candidate to get a loan.

‘Problem’ credit score – 650 to 690

If your score is here, you have a bad credit history. You may have struggled to repay loans to more than one company, and it could show you have loan default. You are likely to be declined for more credit as you are deemed a risk who will not make your payments in a timely manner — or at all (in the eyes of the credit card company).

‘Poor’ credit score ratings – 350 to 650

You are ‘damaged goods’ to lenders. Several lenders have found you have issues with paying them back on time — or you have declared yourself bankrupt. Unfortunately, this will stay on your report for around 10 years.

If this is your credit score, you should talk to someone in finances in order to get advice on how to repair your damaged credit.

Having no credit

This means you haven’t yet borrowed cash.

Good for you — but not so good to the companies. You must establish a credit history, and when you have been approved for your first loan, make sure  you pay back the installments on time to gain a good credit report.

The ability to take out a loan is a good thing; sometimes as it can help you balance your cash. It’s all about making sure you can take steps to pay it off each month and be responsible with your repayments.

Why is my credit score important — also, how can I get a better score?

If you have any form of credit, you should take active steps to improve it. It affects mobile phone contracts, car loans, insurance payments, bank accounts and much more. Credit ratings are always shrouded by myths, but we will tell you what you need to know when it comes to getting a better score.

First of all, each lender rates you with a different scoring method. Just because one lender has turned you away does not mean another one will. Credit scores are not universal.

Secondly, you must borrow money to get a good credit score — quite often, those who have had bad credit scores have not ever borrowed cash. You can start to take out credit with small baby steps, like getting a mobile phone contract, or signing up for a store card to pay off purchases via a monthly statement.

The more you borrow — providing the payments are met in time — the more your credit score will increase.

Credit scoring is a means lenders use to predict your payments in the future; it doesn’t indicate you will or will not meet the loan payments. Most of the behavior is based on how you’ve performed in the past.

Another weird thing — sometimes the bad guys get higher credit scores! If you are going to pay off your cards religiously before the end of the loans, then this means you will not offer the companies a lot of leg room to gain profit from you.

The whole idea of credit companies, and what makes them tick, is to loan cash to make you pay back interest. If you pay off loans before they are due back, then this could have an adverse effect on your credit scores.

Where can I go for more information?

In the U.S., the Federal Trade Commission (FTC) is the nation’s consumer protection agency, and it will help you learn how credit ratings work.

You can also write to the Annual Report Request Service and request a copy of your credit report at PO. Box 105281, Atlanta, GA, 30348-5281.

Of course, here at Uninkable we are not promoting going into debt, or getting credit cards. However, if you can maintain your finances responsibly, then a credit card, loan, or the like could be the answer to your prayers.

This article has been designed to help you learn more about credit scores — before you apply for credit! Good luck!

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