Credit and Debt – Understanding Credit Scoring

What is vitally important about credit/debt, is that it is understood and properly controlled. It might be interesting to first discover why some people can easily obtain credit, while others may be refused

A lender will do some research before making a decision and one of the main factors taken into account will be your ‘credit score’.

This represents your creditworthiness – the likelihood you will pay back your debts on time – and is expressed as a number. This number is based on an analysis of your credit file. Your score is mostly based on information from your credit report, which is on file with credit bureaux and/or reference agencies. It can also represent information, which is easily obtained from public documents, such as your marital status, family situation and who else lives in the same house with you. In the UK, if your name appears on the electoral roll (list of people eligible to vote) then that can add points to your score.

When you pay your bills on time, you maintain a healthy credit score. When you are either late or neglect to repay your debts, your score goes down and it becomes harder to obtain any loans and services at a reasonable cost. With regard to late payment, since recent changes in credit scoring methods in the US, even one day late could cost you dearly, taking 50 points from your score. Late is late, and it is not unknown for one or two percentage points to be added to the interest on your mortgage, so it does not take a genius with a calculator to work out that those late payments might add thousands to the cost of buying your house.

Most lenders, including banks and credit card companies, will use information like your credit score to decide whether you are a potential risk, when it comes to lending you money. These institutions use your credit score to determine if you qualify for a loan, and if so, at what interest rate, and with what limits.

Your credit score could be important for many years to come, so get used to keeping your credit file clean.

It is a good idea to get all the advice and information you need before making a decision which could have long term effects.

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