Why Do Credit Scores Matter So Much?
Applying for a loan: it’s rarely as simple as you would like for it to be. Before you can determine your rates and payments, your lender will need to check your credit score–but why is your credit score so important, anyway? That one number goes a long way toward determining how much of a loan you can take out and what your rates will look like long-term–but why do they matter so much?
Lenders Can See Your History
When lenders check your credit score, they’re really looking to see what kind of borrower you’ll be. Generally, in order to secure a good loan rate, you’ll need at least a two-year credit history. Then, lenders want to know:
Do you pay your bills on time? When you have a loan, do you make sure you make payments in a timely manner, or do you often miss payments? Have you failed to pay other loans in the past?
What types of loans have you taken out in the past? Do you have several different types of credit, or have you simply taken out one credit card in an effort to build your credit score? Lenders would like to see a positive history with different types of payment.
Lenders Can See Your Available Credit
Ideally, lenders want to work with borrowers who have a reasonable amount of credit still available to them. If you’re able to take out large loans, but you’ve already maxed out the credit available to you, you become a less desirable prospect. For example, if you are already making payments on a mortgage and several credit cards, an auto loan company may be less likely to take a risk on you–or may offer you hire rates to compensate.
Your credit score helps determine the level of risk you represent to a potential lender–and as they assess your risk, they will determine what rates they can afford to offer you. Do you need to fix up your credit or learn more about how to present yourself to a lender? Contact us today to learn about credit scores and why they matter.