If you’re seeking a personal loan you’ll want to know your credit score. Because if it’s subpar, you may run into difficulties getting that loan.
What’s a Credit Score?
A credit score results from a review and calculation of the following eight factors:
Also know as a FICO (Fair Issac Corporation) score, after the company that created the first credit scoring system in 1958, the scores range from 300 to 900.
The Three Credit Bureaus
There are three companies in the business of gathering, maintaining and selling consumer credit history information. They are TransUnion, Experian and Equifax.
These firms collect information about the payment and credit application habits of consumers from retailers, banks, credit unions and other credit grantors.
They store this information in a database. Then, they sell it to credit grantors in the form of credit reports. The credit bureau charges a fee for each report they sell.
Factors in a Personal Loan Decision
Because the three credit bureau firms look at the numbers slightly differently, lenders may look at your scores from all of them. Combined with other data (income to debt ratio, income, debt capacity, your character, etc.) the lending institution’s underwriter will make a decision about whether or not to grant your personal loan.
In fact, your credit score is one of the three C’s—Character, Capacity and Credit—that lenders look at so it’s very important and the higher the better.
It’s very, very difficult to obtain an unsecured personal loan with a poor credit score. You’ll almost certainly need some collateral to obtain a personal loan.
You can also take the time and concentrate on improving your credit score so you can get a loan when you need it.
Review and Repair Your Credit History, if Necessary
You can request a free report each year from the three credit bureaus mentioned above. If you find errors, fix them. If there are no errors but your score is subpar you can fix it by doing the following:
Eventually, assuming you’re paying your mortgage, auto loans and other debts on time, you’re score will begin to rise.
Only when your credit reports get back to a satisfactory level will you be able to take advantage of the best rates when you have to take out a personal loan.