Why are Creditors Interested in My Credit File? | Credit File & Report

Your credit file contains information that serve as basis of your credit score. Creditors look into this three-digit number that mathematically interprets the information in your credit files. That’s why it is important to get copies of your credit report from credit reporting companies like Equifax to review your credit-related activity, such as credit enquiries and credit card balances. It is also possible to discover incorrect information on your file because this information includes tax liens and public records, submitted to the credit reporting companies.

What other things do creditors look for when evaluating your creditworthiness?

Aside from your credit score, lenders are interested in your outstanding debts, income and status of employment. These factors, in conjunction with your credit score would help them determine whether you qualify for a loan or not, and the applicable interest rates and terms of loan suitable to you.

Here are things that may be dependent on your credit score:

Interest rate

Interest rates percentages may vary on a case to case basis. But, your individual credit rating often determines the APR on loan or a credit card. A credit card applicant with a bad credit is most likely to have a higher percentage interest rate than those with better credit ratings. In the same way, those with better credit are more likely to receive lower interest rate offers. It is because creditors, especially credit card companies want to deal with individuals who have excellent credit ratings and will offer lower interest rates to encourage them to apply.

Lending to individuals with fair or bad credit scores is a risk to the credit card company. That’s why, when they approve applications of those bad credit, they are most likely to charge higher APR and fees to safeguard their financial interest and to get something in return for accepting the application of a high risk borrower.

It is advisable for people with fair to bad credit scores to take the necessary steps to improve their credit rating. Get your credit score up to 720 points and above so that banks and mainstream lenders will consider you a sound credit risk. The moment you reach this score, lenders are most likely to approve your application and if you are applying for home loan, your credit rating can possibly save you thousands in annual interest costs. An excellent credit score can help you secure the most affordable interest rates and favorable lending terms.

But, if you have a bad credit rating, you are most likely to pay half a percent to 2% more than someone with a fair or bad credit, especially if you have to borrow from a high-interest lender.

For example, Wang intends to obtain a home loan amounting to $100,000 at 5% APR. That means he has to pay around $5,000 a year. Sam plans to borrow $100,000 but since he has a bad credit, and he only qualified for 6% APR, so he has to pay $6,000 a year. That’s $1,000 difference. By simply boosting his credit, Wang is able to save $1000 a year for the same amount of home loan.

Fees

Generally speaking, borrowers pay the same fees for the same credit card or loan product. The same fees will apply among individuals with excellent or good credit and those with bad or fair credit.

When you obtain a credit card with a company, you have to pay the same fees that others pay, especially with regards to over the limit fees and late fees. In a nutshell, if a credit card company disapproved your credit card application because of a bad credit score, you may have to look for another credit card company that charges higher fees for the same credit limit. While a borrower with a good credit enjoys a credit limit of $10,000 for 7% interest and minimum fee with Credit card A; you may have to enjoy the same privileges at a higher interest rate plus higher fees for the same privilege with Credit Card B that accepted your application.

Approval rating

It is easier for a borrower with excellent credit scores to obtain a credit card and get a lower APR on that card. In the same way, your chances of obtaining a credit card and receiving a low interest rate often decrease as your score drops. For this reason, it is advisable to establish good credit and to pay your bills on time to improve your overall credit score and obtain fantastic credit opportunities in the near future.

Learning as much as you can about personal finance and credit is necessary, especially if you want to save money on credit cards and loans. .Borrowers from all walks of life should have a general understanding of the credit scoring process and how it works. Challenge yourself to apply your basic credit score knowledge to repair your credit and boost your score. It is also important to understand the impact of your credit-related activities on a credit rating. Contact Clean Credit for more information.