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Understanding Credit Scores: How They Impact Your Credit Approval
Have you looked at your credit score lately? It’s important to check your score every few months as it can determine your creditworthiness and can significantly impact your ability to make big life decisions like taking out a loan, obtaining favorable interest rates, purchasing a home or a car, and other financial opportunities. In this blog, 360 Credit Consulting will explain the importance of credit scores and how they can impact your credit approval in the future.
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What is a Credit Score?
According to the Consumer Financial Protection Bureau, a credit score is a prediction of your behavior and how likely you are to pay back a loan on time. The score can be reflected by credit history, payment behavior, credit utilization, length of credit history, and more. The FICO® score is a credit scoring model with a range of 300-850 ( a higher score indicates lower risk) and lenders will use this score to determine terms and conditions of credit approvals.
Impact on Loan Approval
Credit score changes can have a significant impact on the approval process for loans. These loans can include mortgages, car loans, personal loans, and even credit cards. When you are applying for a loan, lenders will use your credit score to evaluate the risk. As a borrower, your goal will always be to improve your credit score. This is because lenders will likely approve your loan with a higher score and possibly give you better interest rates.
Credit Score Factors
Factors that will contribute to your overall credit score calculation include:
- Payment History
- Credit Utilization
- Timely Payments
These are the most common contributors to your credit score, but other factors could be the length of credit history, types of credit accounts, and recent credit injuries. When you understand all the factors that will affect credit score changes, you will be able to make informed decisions to improve your creditworthiness.
Improving and Maintaining a Good Credit Score
If you want to improve your credit rating, it will require responsible financial management and discipline to maintain a higher score. Consider the following actions for credit improvement and maintenance:
- Make Timely Payments
- Maintain a Mix of Credit Accounts
- Manage Credit Utilization
- Regularly Monitoring Credit Report
When you understand your credit score and why it changes you can begin to navigate the financial world and improve your opportunities to be approved for various loans. If you are ready to improve your credit score, contact 360 Credit Consulting and we can begin our consultation process. Financial freedom is possible when we take the steps to invest in our financial education!
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