Credit Score Defines Your Credit Risk

Saturday, April 7, 2012, 2:00 AM | Leave Comment

If you are looking to get loan of any kind or even apply for a job, lenders examine your credit score so they can establish your credit risk. They want to assess it to determine the amount of money they can lend you and the interest rate they can charge you. Whether you apply for mortgage loan, student loan, credit card, or a personal loan, your credit score defines your risk for repayment.

Why you need good-to-excellent credit score?

Your bad credit score will affect and increase the incidence of delinquency and default. Lenders make money when you perform your obligation of repayment as scheduled.

Lenders look at your current and past financial circumstances and the nature and value of the property serving as loan collateral in the case of a secured loan.

Lenders not only want to make money by extending you the loan if you are a low credit risk, they also want to save themselves from losing money by rejecting applications if you are a high credit risk.

The following score table includes the very bottom of the credit score ladder to the very top. See where your score lies:

Poor: 350-619

Different surveys suggest that, on the average, almost 20% of the U.S. population has a credit score under 620. One big reason is the bankruptcies occurred during the last few years. Fall below that and you are likely to be labeled a high risk for a loan or line of credit.

Either a loan would not be extended to you or if it is, you would be paying an arm and a leg in interest. It would be like getting a loan from organized crime of the 1960s, 70s and 80s.

  • Credit Risk
    In the eyes of almighty banks, you are at the highest risk possible in paying your loan back that can be satisfactory to the lenders. They fear you will fail to fulfill the loan obligations as scheduled.

Fair: 620-649

You are obviously better than those with poor credit but still not good enough to get the loan you need with the interest you desire.

For many vendors, 620 is considered right at the edge of good and poor. It is the dividing line between good and poor credit. Your next job, should you decide to accept it, is to take steps how to make it better so that it is above the 649 mark. Better than 650 is generally considered good credit.

  • Credit Risk
    Banks would think hard to extend you the loan. They would but not at the interest rate you wished you got.

Good: 650-749

The lower end (650) of good credit is good but many banks consider above 680 as pretty good. It may not be the high end of the Good credit (749) but still high enough that you will qualify for some of the better interest rates banks have to offer.

This range typically represents a consumer with no late mortgage payments and no more than one 30-day late payment on consumer credit.

  • Credit Risk
    You are at a very good risk, meaning the banks would trust you would pay back the loan with your utmost due diligence.

Excellent: 750-849

If you have credit score above 750, you are flying high above the clouds and you should not have any kind of problem of getting a loan – the amount you want within reason of course – at the best possible interest rate at the time.

You are at the very bottom of the low-risk borrowers. However, it’s not a one-shot kind of scenario, meaning you must maintain your credit score above 750 to continue getting loans as the need arises.

  • Credit Risk
    No question asked whatsoever. The banks would be happy to lend you the money you want and at the best interest rate possible under the circumstance of the day.

In a Nutshell
It’s always a good idea to keep abreast of your credit score. Get your free annual credit report now. If you need to improve your credit score and many more folks do, then you should strive to do so. If you have credit score 750 or better, you should try to maintain it at the highest possible level.

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