Why It Has Become So Essential To Know Your Credit Score?

Your credit score like your reputation follows you around.
This is more true if you are embarking on a new venture like moving to
another town or starting a new business.
What you have achieved in the past remains significant.
There would be very few occasions when it would not matter.

You may not realize the importance of having a good credit history in the
early years but be sure it will become extremely valuable at a later date. A
good credit history will help you obtain loans at lower interests, get a
better job, get help in renting an apartment, secure finance for white goods
and even get great financial references when starting a new business.

You have to therefore keep track of your credit scores and to do this you
must obtain a copy, either free or paid of your credit report and score.
>From the report you can read the contents and understand how it is affecting
you.

Your credit score tells the lender what the chances of getting his money
back from you would be. To understand this let's relate it to the rank your
child would show on his report card. One glance and you would know the total
number of students in the class and the number at which your child is
placed. The determining factor here would be his performance in studies.
Similarly, the lender will have a good idea of how you manage your debt,
your past record in the same and any defaults or issues you have had.

So just how is this score calculated? All related information like your
income, credit history, employment details and the like are logged into a
computer and a score is obtained. If you get a higher score, the lender
knows that you are a good person to loan the money to i.e. you have a better
credit risk. If the scores are lower then that spells trouble.

You score can be lowered due to late payments, deferments, tax liens,
delinquent accounts and similar issues. If you have settled the same, these
issues continue to be mentioned on your report for up to seven years.

Some people may think if they cancel their credit cards their score will be
bettered. This is not true. Your credit score actually shows how well you
have managed your credit.
The key is to keep one or two credit cards and manage that debt rather than
having multiple cards and ending in a mess.

While credit scoring only puts you into a bracket, it is ultimately up to
the lender to decide on the actual course of action. Based on your low score
your request can be rejected. If you do get through, you may be offered the
loan at a higher rate of interest.

As in any kind of lending, the lender takes a chance with his money, in that
he may not get it back. As the borrower you get a provision that you
otherwise could not afford.
The rate of interest secures the risk for the lender and pays for the
facility for the borrower.

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