What does Credit Score mean? How can we know ours?
The term credit score has become commonplace for some years, although in reality many people still have an unclear meaning.
When we are going to apply for a loan, it is possible that we hear about credit score. It is a term that is gradually entering common use. If you have heard of it, there are probably some questions that have not always been easy to answer.
Do you know your credit score?
Do you know the meaning?
Do you know if it is possible to improve this score?
Is it possible to know only through a loan application?
Why do financial companies need this information?
Where does the credit score come from?
But let’s start from the beginning and see what a credit file of any subject contains.
Among other things, it contains the details of your credit transactions: the good things, like all those loans regularly repaid and the less good things, such as any defaults, late payments, court orders, protests and prejudicial.
How is the credit score used?
With us, your credit score helps us determine the interest rate and the adequacy of the amount requested by you.
When applying for a loan, you may not know your score, but there are some details that can help you understand any refusals and also justify any approvals.
Your credit file helps us paint an image of who you are beyond the number you correspond to. By observing your past and present credit history and analyzing how you managed this credit, combined with a series of other elements we can evaluate how you could manage a loan in the future.
Can the credit score improve over time?
This is one of the reasons why credit scores can improve over time. A longer timeline contains more information because you are more likely to have experienced credit-related life events, such as buying a home or having other types of assets in your name. By analyzing these events we can evaluate how you managed this “financial” story also through the ups and downs of life such as job changes, marriage, divorce or children.
Currency Prestiamoci therefore this information to determine what will be the rate of interest in case your application is successful and we do this to try to secure a loan that you can afford to repay without jeopardizing your family finances.
If it is still not clear to you, you can think of comparing this assessment to that of insurance premiums, with which you are usually more familiar.
For example, two people might own the same car, but have very different driving stories.. A car owner with an accident-free driving history and claims for compensation will be entitled to a better insurance premium than an owner who has had several accidents for which he has filed many claims for compensation.
Likewise, anyone who shows a good credit history in their credit file, for example without late payments, will have a better credit score than someone with a credit history showing overdue payments.
You and a friend can earn the same amount of money, both applying for a loan, but you will receive different interest rates, precisely because of the differences in your credit history.
Why do financial companies need to know the credit score?
The companies with which you enter into a financial relationship, such as Prestiamoci, identify your credit score to help develop a clearer image of your credit history, subsequently the analysts will deepen the meaning of that score, possibly requesting further details of your history, as well as the documents necessary to submit the request. However, it is important to dispel a misunderstanding: it is not just how much you earn, but how you manage that income, which lenders will take into consideration. The financial responsibility of each of us is not directly proportional to our earnings!
As we said at the beginning, knowing your credit history before applying for a personal loan, a mortgage or a second credit card can help us have a clearer idea of our merit (credit, of course).
Becoming aware of one’s situation, for example of outstanding debts, can push us to change our behavior and find a solution to start repaying them, trying to understand if it would be cheaper to consolidate everything in a single loan or understand what type of installment we can allow us to face.
Another element that is often misunderstood is that of the use of credit cards, in fact if having a high debt on the credit card can have a negative impact on the credit rating, in reality the regular use of the same and its timely payment will have a positive impact as they demonstrate responsible debt.
Here’s what the credit score is for
Here is a term “new” which should also become common use, a concept well known in Anglo-Saxon countries, but in Italy still not consolidated. In fact, what makes us a worthy subject is not the lack of debt, but an indebtedness that we can afford to repay!