Lenders are not looking for borrowers who always pay their debt off in record time. They can not make much money off people who pay the loan back too fast. Instead, lenders are looking for people who will be paying interest for quite some time, but are not likely to go bankrupt.
Just because you have a great credit score does not mean that lenders are going to automatically accept you. If you have a credit card with high interest, no annual fee and have always paid your credit card off in full, lenders will not like you. If you never pay interest on your credit card, your lenders will be lending you money each month and getting nothing for it. Your credit score will be too high. They will see you as a bad investment as they are making no money off you.
Lenders calculate a credit score from many sources of data. These sources range from information the company has, to the government and other companies.
The application form is the first source of information that lenders use in calculating your credit score. Details such as your salary, family size, if you own a home and the reason for the loan are all used. Lenders like to target borrowers that have some money but are still not likely to pay the loan off in full.
Past dealings with the lender are also used in the calculation. All your previous iterations with the lender are analysed to help inform the lender of your money habits.
Credit agencies compile information about you and can send this data to any prospective lender. This information can be compiled from electoral roll information, court records, Financial data.
Recently, black lists and white lists are now shared between finance companies. Although this requires your permission, this gives them access to a lot more information from many other companies.
If you are feeling like your credit score is very personal, well it is. There are some data that companies are not allowed to use:
The first is any data of fines that you have incurred from courts or driving.
Savings accounts do not involve credit so they are not included.
Previous medical history is not included unless you include it on an application form.
Criminal convictions are not used or listed.
Information about child support is excluded.
Information about other members of your family, who you live with, who you have lived with is not included unless you have a joint financial interest.
Data about student loans is not given to credit agencies, unless you have a court judgement against you for lack of payment.
As you can see, it is important to have a good credit score. Late payments or not paying one company can affect your chances of getting a load with another company.
Credit Report And Credit Score
Having been through all this I want to share with you my experiences and the means to getting a top credit report after you've severely damaged it. Whilst the process isn't instant it doesn't take long, and with a little drive and determination (which, let's face it, we all get when we work our way into serious debt) anybody can regain a healthy credit score.
Most of us don't see the early warning signs of a credit problem. We just brush them off, telling ourselves it doesn't matter, everybody does it and it'll turn out alright. Truthfully, it's more like we just don't want to know that we have a problem, which is understandable. Most of us don't like to admit that there's something wrong with us. Having been through this myself I can see it now, but I used to happily work my way through repayment after repayment after repayment... it was an endless process which gradually got me into increasing debt and created an ever -increasing problem for my credit report.
Credit cards are one of the main factors in all of this. The original purpose of credit was to provide convenience to customers who wanted to make big purchases without having to wait for very long periods of time. It also meant it was possible to stop worrying about bringing cash everywhere that you went. However, what started off with innocent intentions has grown into a mass epidemic of addicted spenders who sink into a world of debt.
Unfortunately these innocent intentions have also been undermined by the banks themselves. They constantly encourage us to borrow more and more money. If you're having trouble with debts just borrow a bit more money until you can get your way out of it. Of course, they know that this just creates a spiraling mountain of debt but they get all the benefits and none of the drawbacks, reaping in repayments constantly that amount to far, far, more money than the borrower would ever have kept in their bank account. With all this, the banks make a huge amount of profit through interest.
To repair your credit score you have to take into account the fact that lenders don't like to lend to those with large debts. So firstly, you have to start paying off your debts. One of the best ways to work through debt is to get a debt card - this allows you to spend only money that you have in your account, and not spend money that is borrowed from the bank.
Ensure you pay back your monthly credit card payments. Keeping up with these will contribute to the repair of your credit score. Make sure you do not make late payments, and if possible make your payments early.
Both Ben Dover & Allan Hausnork are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.