Credit Score's Role in Getting a Loan
(Posted on Nov 13, 2020 By M.K.B)
When you are in need of money to coverup an expense, you will tend to obtain a loan. This is the most common method to
follow and get the cash needed by people. However, there are some requirements, which you need to fulfill at the time
of obtaining a loan. Credit score holds a prominent place out of them. Even if you are hunting for loans online, you
will need to pay a lot of attention towards the credit score. That’s because it has the ability to create a strong impact
on the ability you have to get a loan and use it to cover up your financial requirement.
Why do you need to have a good credit score to obtain a loan?
If you are trying to get personal loans, the credit score would be one of the most common factors to be evaluated. It will not be possible for you to get a personal loan without having a good credit score.
Credit score is representing the complete credit history of you. Your credit history is reported to the credit reporters by your lenders. This will help your lenders to get a clear understanding of how responsible and experienced you are with managing your debt. If you are having a high credit score, you will be able to showcase that you are more responsible for handling your debt.
Lending money in a personal loan would be a risk for the lender. Hence, the lender is looking for a way to minimize that risk. This is where the personal loan would play a major role. On the other hand, people who are having good credit scores will even be able to secure the best interest rates with their personal loans. Hence, all the people who are planning to go ahead with personal loans must have a good credit score at all times.
What factors contribute towards your credit score?
If you are rejected by obtaining your loans online because of the bad credit score you have, you will come across the need to understand how to increase your credit score. There are numerous factors, which are contributing to your credit score. Here are the most prominent factors out of them.
Are there any risks in payday loans?
Payday loans might seem like a good solution available for most of the people to go ahead and use. However, you should understand that there are some risks associate with payday loans as well. If you can keep these risks in your mind and get your payday loan, you will be able to refrain from struggles that you have to face in the future.
Most of the people tend to go ahead with payday loans as they are more accessible when compared to personal loans. You can even get a payday loan as a cheaper option when compared to a cash advance on the credit card. However, you should be careful with the payday loan. Otherwise, you will badly end up with hurting your credit score.
After you get the payday loan, you will be giving your next paycheck as the repayment. As a result, you will not have enough money to cover up your expenses in the next month. Hence, you will get another payday loan. We often see how people get themselves trapped in such loops of payday loans. You need to be careful and make sure that you never get yourself trapped like that.
Your payment history
Payment history is one of the most prominent factors that can contribute to your credit score. If you are making the debt repayments in a timely manner, you will be able to have a good credit score. On the other hand, you should be consistent along with the borrowing agreements as well. This is one of the biggest factors that can create an impact on the overall credit score. Hence, you need to pay special attention to this face. If you miss out any of the debt payments, your credit score will be impacted by around 35%.
Credit utilization ratio
The credit the utilization ratio of you would also create an impact on the credit score. The credit utilization ratio of you is calculated by dividing the total amount that you have under the credit card balances by dividing them across the borrowing limits. Creditors usually prefer if you can keep your credit utilization ratio under 30%. If this is higher than 30%, your credit score can be impacted as well. In fact, it has the weightage to create an impact on your credit score by 30%.
Length of credit history
The length of credit history you have can create an impact on your credit score by 15%. You need to settle down your credit card balances in a timely manner. On the other hand, you need to make sure that you are making all the bill payments in a timely manner as well. In other words, you should responsibly manage all the credit accounts you have.
The credit a mix of you would create an impact on the credit score by around 10%. You will usually have numerous credit accounts. They include student loans, credit cards, car loans, payday loans, personal loans, mortgages, and many other loan types. The mix of your credit accounts would create an impact on the credit score. That’s because it is representing how you are managing your credit in an effective manner.
The last factor that creates an impact on the credit score is new credit. It has a weight age of 10%. If you had opened new credit accounts in the recent past, you have to experience dips in the credit score. That’s because hard inquiries have happened to the credit accounts. Therefore, you need to make sure that you don’t have any such hard inquiries at the time of applying for a personal loan.
What can I do when my credit score is bad?
If your credit score is bad, you will not be able to get your personal loan approved. No matter how hard you try, it will not be approved. However, you don’t have to get disappointed with this because you will still have some other alternative options available to consider.
For example, you can think about going ahead with payday loans. Payday loans usually don’t check the credit card before your application is approved. However, the interest rate of a payday loan can be relatively high. Another option that you can consider is a car title loan. It is also associated with a high-interest rate.
Take a look at the online loans that are available for you to get the amount of money you want without doing a credit check. Then you will be able to get the money you want to be deposited into the account without facing any struggles. As a result, you don’t have to worry too much about the bad credit score you have. You can get the money needed to cover up the financial requirement and then keep on building your credit score slowly.