A credit score, also known as a credit rating, is a numerical measurement calculated on the basis of an assigned scale, reflecting the creditworthiness of a person. A credit score normally depends on several variables such as the amount of credit extended, types of credit applied for and frequency of payment made. A credit score gives a lender an indication of the likelihood that you will repay your debts as agreed.
People with an excellent credit history are perceived by the credit reporting companies as more responsible users of credit resources, and they are seen as more reliable borrowers. This is why credit reports contain information on people with an excellent credit history. Good credit is viewed as a prerequisite for good investment possibilities and good employment. Many employers use credit scores to assess potential job applicants, and some mortgage lenders use credit reports to assess mortgage eligibility. The importance of credit score measurement is high on the list of issues discussed at the privacy and data protection chapters of Data Protection Legislation, the European Union’s directive concerning the processing of personal data.
The importance of the role played by credit reports in the financial decisions made by lenders and mortgage lenders can never be underestimated. In fact, a credit score provides the legal basis for the decision to approve a loan, the amount you are charged for borrowing, and whether or not you are able to maintain a certain lifestyle. Lenders and other decision makers use a credit report to assess your financial position and to determine if you are a good borrower or a bad one, thus affecting the amount you are given, the interest rates you are eligible for, the duration of the loans you are eligible for and the conditions under which the loan is provided.
Credit scoring models show that lenders use the credit report to check whether the potential borrower is suitable for credit or not. When you apply for a loan, the first thing the lenders will do is check your credit score. If your credit score is below the median, the lenders will consider you a high risk borrower, since you are considered to be high risk when it comes to meeting repayments. If the lenders see that you have a good credit profile, they will offer you a lower interest rate; if you have a low credit score, they will consider you a low priority borrower and your application will be rejected.
Experian, Equifax and TransUnion are the three credit bureaus responsible for collecting information on every individual who has registered with them. Your Experian record is the first document that you should review when applying for credit. Your Experian credit score will provide the information on your financial standing as well as the risk that you represent to the lending companies. Your Experian report will contain basic personal information as well as details about your financial situation including how many borrowings you have made, when you last paid off an account, the number of inquiries you have had within the past year and any inaccuracies that may have affected your credit score. If you find inaccuracies in your Experian record, contact the lender immediately to have this corrected before applying for credit.
Once your Experian report is ready, you should check your credit history with the three credit agencies. You will be given details about your Experian history along with the score. Lenders will also be able to tell from the information in your credit reports whether you have repaid all of your debts in full and whether you have defaulted on loans or debts in the past. The lenders will also be able to tell how timely you had repaid the loans or debts in the past and what impact this has had on your credit score. This will help you work out the best way to manage your credit and work towards establishing a good credit history. You can use the The Good Steward Financial System or TGS Credit Management App to request these scores and manage them all in one place. You can download this app free for either Android or Iphone.