What Is Credit Score Scale and How It Affects Your Loan Applications?
Through a series of information analysis, a credit score scale is thereby assigned to a borrower. This score would serve as the evaluating factor for the borrower’s eligibility to avail loans.
Lately, there had been an increase in credit abuses in major parts of the globe. This issue has raised an alarm on banks and lending institutions since it is their industry that suffers most due to the rampant misuse of their loans.
Some of the “credit crimes” that have been reported often include late payments and exceeding the credit card limits. As part of the campaign to keep track of the borrower’s capacity to repay his dues, a few authorized credit bureaus have formulated a credit score scale.
Credit Score Scale VS Lowering The Credit Limits
Simply lowering the credit limits of a borrower does not seem to take effect these days. Banks and lending institutions have become wary of approving loans for people with varying needs and financial standings.
Fortunately, through a credit score scale, they can give the assessment of the loan applications without any prejudice. This is a system adopted by credit bureaus that helps in determining the “credit reputation” or the creditworthiness of the borrowers.
How If Outcomes Scores Above 600 or Below 500?
The credit scale involves a series of scores ranging from 300 as the lowest to 850 as the highest.
To determine the credit score of a particular borrower, the lending institution will forward the information gathered from the borrower himself upon his application to an authorized credit bureau.
The bureau will then conduct an investigation on the borrower’s previous files in order to come up with a credit history.
After all the necessary data have been analyzed, they are later translated into variables so that a numerical value of the borrower’s creditworthiness can be assumed.
If the outcome scores 600 and above, the borrower is found to be eligible for loans. However, if the borrower scores below 500, he is considered as a credit risk by the bureau and moneylenders.
Having a good credit reputation is a must for every borrower. Before he can apply for any types of loan, he is required to present some proofs of his financial capacity.
On the part of the lenders, they will have to verify the data presented to them before making any actions.
An updated credit history serves both parties in a way that it protects them from financial bankruptcies.
Borrowing money is easy for those who scored 600 and up. Such scores are proofs of the impeccable records of the borrowers.
However, it would be very difficult for a person to avail of loans if he failed to get a decent credit score.
Disadvantages Of Having a Bad Credit Score
Some of the disadvantages of having a bad credit score include rejection of loan applications, paying high-interest rates and not being able to extend the loan.
Still, people with bad credit scores can apply for other loans that prioritize borrowers who are rather considered as credit risks.
There are some lending companies that allow these people to borrow money, although the catch is usually to pay at much higher rates as compared to those offered to much-qualified borrowers.
Most people take the risk of borrowing bad credit loans even though there is a great possibility that it will only make their credit reputation much worse.