Have you ever wondered what affects your chances of getting a car loan, home loan or a personal loan? One of the biggest factors is your credit score. So what exactly is your credit score? Here, we will explain the important role that a credit score plays in determining your loan approval chances.
What is a credit score?
A credit score is a number compiled one credit reporting agency that gauges your creditworthiness. Your credit score is a number that will range from 300 to 850. The higher the number the better. Most lenders consider any score of about 680 to be good credit with any score above 750 to be excellent credit.
Your credit score is compiled by look at six factors:
- Credit age – How long your credit accounts have been open. For excellent credit, you should have a credit age average of at least seven years.
- Number of open accounts – Number of total accounts you have open. For excellent credit, you should have at least 10 accounts open.
- On-time payments – Checks if you pay your bills on time. For excellent credit, you should have at least 99% on-time payment history.
- Credit utilization – How much of your credit do you use. For excellent credit, you should keep your credit utilization under 20%.
- Delinquent notices – Do you have an account in collection, judgment, evictions, or bankruptcies. For excellent credit, you should have zero delinquent notices.
- Hard inquiries – How often are you applying for loans. For excellent credit, you should have no more than two hard inquiries per six months.
How does a credit score affect your loan chances?
The higher your credit score, the better your chances for a loan. If you are looking for a personal loan. Then you should at least have good credit. If you are looking for an auto loan or a mortgage loan with competitive rates. Then you should have excellent credit.
What is a good credit score?
If you are looking to open a credit card with competitive rates, then you should have a good credit score which is about 680 or higher. If you are looking to get an auto loan or a mortgage loan with a competitive rate, then you should have a credit score of at least 750.
How to improve your credit score
You can improve your credit score by taking the following steps:
- Pay your bills on time.
- Keep a less than 20% balance on your credit cards.
- Keep your credit card and other accounts open.
- Bad off any outstanding debts.
How to monitor your credit score
By law, the three credit reporting agencies are required to provide you with one credit report per year. You can get a free copy of your credit report by visiting the websites of the three credit reporting agencies:
- Experian
- TransUnion
- Equifax
You can also open a free account at Credit Karma. There, you can get updated look at your credit scores from Equifax and TranUnion.
Getting a top loan with a prime credit score
If you want to get that personal loan, auto loan or home loan, be sure to understand and carefully monitor your credit score. Get a free copy of your credit scores today. By making the right adjustments, you can boost your credit score and get the loans that you need.
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