Does the credit score indicator have a numerical value, or does it represent only the reliability and integrity of the citizen? It turns out that the ability of the client as a credible borrower is significantly expanded with the growth of points on the FICO scale.
Not only consumer credits for phones or small appliances are available to the owners of sufficient points. They have high chances of borrowing money for big purchases, such as buying a home or land. Moreover, it becomes realistic to get financing for your own business. Banks offer the most attractive service and lending packages, first and foremost, to customers who have established themselves as reliable partners.
It is important to mention that you may have access to business loans even with a bad credit score, but be prepared to pay sky-high interest fees. Good credit history will secure you better rates and fees rather than those with bad credit.
Credit Score and Rating: What Do the Numbers Tell?
FICO is the company that developed the credit rating scale. Financial reliability of a person, his ability to timely and fully repay the obligation is estimated in points. This scale is often represented by various shades.
The colors vary from bright red, signaling a real risk of default, to green, which indicates high financial responsibility. The quantitative minimum is 300, and the maximum is fixed at 850. Within these thresholds, additional segments are highlighted:
- 300-549 is extremely low. An applicant with such a rating will get a bank refusal. A positive loan decision is possible only in microfinance institutions that provide loans at high-interest rates or pawnshops secured by the property.
- 550-599 is a border value. Applications from people with such a rating will be handled with particular care, first and foremost concerning ways of the refund.
- The average score is 600-649. This amount of points is sufficient to approve the loan under the terms of the guarantor, and the loan amount is usually lower than requested.
- Corridor of 650-699 points provides access to credit regularly. Banks seek to have as many of these customers as possible. Moreover, offers to open credit cards will be received not only from banks with already opened accounts. The owner of such a credit score has a high likelihood to be approved for a high-cost loan like buying a car and real estate.
- A credit score higher than 700 allows a potential borrower to take a favorable position. The client has the right to choose the bank and the type of loan. As a bonus, a financial institution can offer insurance, credit rate variability, etc.
How to Create Good Credit History?
In simple words, credit history is the record of your cash flow. Therefore, to create or improve it, there is only one option: to take out loans and pay them on time. A borrower should also take into account the following:
- It is obligatory to make at least the minimum payment on your credit card each month.
- The lenders are alarmed by the extraordinary persistence of the client in trying to take out a loan in several places at the same time.
- After repayment of a loan that has been breached in terms of payments, the pause to apply for the next one is usually about one year.
- When applying for a loan, it is not necessary to specify an amount greater than 20% of the declared annual income. A tenth of your monthly income is the optimal amount to pay off your loan
- To prove your ability to repay your loans on time, you need to demonstrate the ability to handle your finances in the first stages. Banks offer to open a secured credit card. It is a credit card associated with a user’s savings account. In this case, the bank does not risk its capital. In the event of a borrower’s breach of credit obligations, the lender has the right to withdraw money from the client’s account to repay the missing amount.
- You can improve your credit history by working with retailers. Credit cards for retail stores, gas stations are easier to obtain than a credit line, but they have a low credit limit. However, with their help, the client improves his reputation as a borrower in the eyes of the bank. It is only necessary to use these cards competently: pay them regularly and on time.