When you fill out an application for a credit product such as a mortgage, loan, or credit card, you will typically be asked to provide your credit score. In this article, find out more about what a credit score is and what it can do for you.
What is a Credit Score?
Your credit score is a three digit number that typically falls somewhere in the range of 300 to 850, with higher scores indicating better credit. Credit scores are considered to be predictive of how risky you are to a lender. Individuals with higher credit scores are viewed as less of a risk since they are seen as more likely to pay back a loan, mortgage, or other credit product within a given timeframe.
Credit scores are computed by taking a wide range of factors into consideration. Key components of a credit report include amount of unpaid debt, bill-paying history, any pending applications for credit, and an analysis of current loan accounts including number, type, and age. Credit scoring models will also examine whether an individual has declared bankruptcy, gone into foreclosure, or had debts sent to collections in the past.
Credit Score Importance
Lenders use credit scores to determine whether or not they should assume the risk of taking on an applicant as a client. This is standard procedure when applying for a variety of credit products including auto loans, mortgages, credit cards, and business loans. Credit scores are also used by employers, landlords, and insurance carriers to assess whether or not an offer of employment, rental agreement, or insurance policy should be extended.
Credit scores have an impact on more than whether or not you will be approved for a particular credit product. They also dictate the terms of any agreement a lender offers. Credit scores are taken into account when determining interest rates for a credit card or loan, premiums for insurance policies, and the length of your lending agreement. Credit scores can even factor into the terms of a cell phone plan.
Put Your Credit to Good Use
Maintaining a higher credit score puts you in a better position to receive favorable terms on a loan application. For example, if your credit is in good standing, you are more likely to be approved to take out an auto loan or refinance an existing one. Gravity Lending makes the process of applying for and getting approved for auto loan refinancing simple. Auto loan refinancing can even boost your credit score in the long run.