Understanding your credit score

Your financial health is greatly influenced by your credit score.

08:35 03 October 2013

Since credit score is vital to your credit health, it is likewise important to understand everything about your credit score.

• What is a credit score?

A credit score is a numerical expression which measures the creditworthiness of a person based on his credit report. The probability that a person has the capability to make loan repayments is determined by his credit score. Credit score plays a vital role in the lending business as this determines how much a person can and should be allowed to borrow. It helps the lenders to determine who must be approved for a loan and who shall be disapproved based on the capability to pay for their loans. Thus, the credit score has a direct influence whether a loan application should or not be accepted, how much amount of loan can be approved, as well as how much interest rate must be charged for the loan.
 

• How is a credit score determined?

A credit score is determined through the information in your credit report. A credit report is detailed information of a person’s credit history which may include up to date credit information, balances, delinquencies, bankruptcies personal data and inquiries made on the person’s credit status. Credit scores help lenders to evaluate the risks in loaning to a particular individual. Every lender has its own scoring systems but there are factors which they consider before approving a loan. Some of which are:

1. The job information of the applicant
2. Does the person own a house, what are his assets or if he has any
3. If he has previous loans, his payment records
4. Old loans or records of any other types of finance that you had which could prove that you have the ability to manage credit for a long period.
5. Too many credit cards or too many loan applications.