The Implications of Credit Scores

There is a misconception in the minds of many who are not conversant with the actual concept of a credit score, that this is something to do with the points you score on purchases in the case of credit cards. Far from it, it is an evaluation of your creditworthiness or put in simpler words, it is a system of points that you collect based on how well you manage your debt by obtaining credit and settling them on time.

Many factors combine to give an ultimate three-digit figure known as the credit score. The factors, weighted appropriately, that determine a final credit score comprise of such particulars as your financial behavior in the past mainly as a borrower, and how diligently you have been settling your debts. These details are compiled by three accredited agencies namely Experian, TransUnion and Equifax who in turn are furnished with same by respective registered lending institutions. These three agencies are also referred to as Credit Bureaus or Credit Reporting Agencies or even as Credit Agencies in short.

So what you owe any credit institution is not private and privileged material. In fact all minute details pertaining to lending transaction countrywide through official sources are made public knowledge, so that any lender may have a good idea before lending to a prospective borrower as to what type of person the applicant is with regard to settlement of debts, how much he is already in debt, and the chances of recovering the loan amount in full on the due dates, etc.

How Important Is My Credit Score?

A credit score has assumed such a level of importance today affecting everybody’s day-to-day life that you must endeavor to have a credit score at a good level to succeed in many spheres of life. It would be almost suicidal to carry a bad credit score these days. I will explain why: I said earlier that the credit score is an indicator of the creditworthiness of its holder.

When you talk of creditworthiness, it exposes not only how financially savvy and responsible you are, but it brings out your whole character into the open depicting your integrity and awareness of your social responsibilities to honor debts on time, your ability to face problems and tackle them realistically and effectively instead of closing your eyes on them, your tendency to indulge in luxuries beyond your means and live a life of make believe and fantasy rather than one composed of he world’s realities, besides so many other personal traits.

So it is no longer limited to credit institutions who show interest in your credit rating when you go to them for a loan, but now it is the practice of most employers and some contractors and agencies for supply of goods and services too to screen their prospective employees / clients to credit score checks for obvious reasons prior to accepting them as suitable for further future relationships. A credit score can reveal much more of what you really are than many testimonials put together from referees of high standing.

Some mobile phone suppliers and credit card agencies fall over each other to offer you the best of various attractive packages. Don’t imagine that they are like fools that rush in where angels fear to tread. No, they are wise guys and they have studied your credit score and record in advance prior to approaching you.

A credit score can determine not only whether your loan application will be approved or rejected, but also as to the rate of interest you will be charged, the extent of credit that will be granted as well as the period of repayment.

It should be borne in mind that while lending institutions, mobile phone companies or credit card companies for example while trying to expand their sales are also looking well into the risk factors involved in extending credit. So if you do not posses a credit score that is considered good, besides totally rejecting your loan application, they might offer you other options such as giving your loan or a lesser amount at a higher rate of interest with shorter period of repayment, with or without collateral, personal guarantors etc.

You may obtain a Fair Isaac Corporation credit score on the payment of a fee of $ 12.95. hey can also be purchased via the website of Equifax.