31 Dec

What You Need to Know about Credit Rating

For most people, just the mention of credit rating or credit score makes them shudder. With the confusion, misinformation and misconception associated with credit rating, you can’t really blame consumers. When you’re confused, however, the ones that benefit the most are the creditors.

With a little effort, credit rating is not all that hard to understand. To help you along, we’ve created a list of credit rating myths to get you started.

1. There is no such thing as a universal credit rating.

Maybe you’ve heard it before. You are blacklisted to apply for a financial product because of your poor credit score. That’s a complete myth. You don’t have a single credit score because different lenders actually score you in different ways. If one lender, for example, has rejected your loan application, it doesn’t mean you’ll end up with the same fate from another lender. If you’re rejected, keep applying from other lenders. Who knows, you might just get lucky and avail the personal loan that you badly needed.

2. Lenders check your credit score to predict your future behavior.

One of the main reasons why lenders check your credit score is so they can foresee how you’ll be as a payer. Depending on your history, creditors use the data to try to predict future behavior. If you have a poor credit history, then you need to take the long road and build one from scratch.

3. Lenders are often all about profit.

Even if you have a perfect credit score, you can still be rejected for a financial product simply because lenders may not make more money with you. If you’re always repaying your credit cards in full each month, there’s a likelihood lenders will reject you against because of profitability consideration. Even if you have bad credit, it doesn’t always mean rejection provided that lenders see that they can earn money from you in the long run.

4. Lenders consider other details more than just what is on your credit file.

If you want to present yourself as borrower in the best light, it will help to know that lenders consider more than what’s on your credit file when assessing your application. Like with any application, you’ll be required to fill out a form. At this point, lenders will be looking at your income, billing address and other key factors such as family size. Lenders also look at your previous transactions with said lender, fraud date, rent payments and more.

5. Lenders do not know it all about you.

Some people fear that all the details of their life are on their credit file. That’s a complete myth because credit files are basically just financial data and information about your spending, borrowing, etc. Contrary to what some believe; key information such as student loans, council tax arrears, parking fines, declined application, savings accounts, medical history, etc. are actually not on your credit files. Lenders have no access or knowledge of them in other words.

6. Lenders use your credit file to dictate the interest rate you’ll get.

Most credit providers if not all use your credit rating as basis for the rate you will get for a financial product such as a personal loan. This means that the risk you pose is directly proportional to the rate. If you’re a high-risk customer, it then follows that your rate will be higher as well. Even with bad credit, you are still eligible for loans and other financial products. The hitch, you’ll be charged a higher interest as dictated by your credit score.

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