How your credit score can affect your financial future

Being in the know when it comes to the affect your credit score has on your life is a huge priority.  Your credit history and your credit score can affect whether or not you receive a loan that you need, a credit card you applied for, as well as your employment status.  There are four pieces of credit terminology that you need to understand when examining your credit.  This article will serve the purpose to explain these terms in a way that the every day person can understand without being a financial expert.

Credit risk

The term credit risk is not one that the every day person hears but it is very important that you know exactly what it is and what it means.  Something that is becoming very crucial to financial companies is risk assessment.  Due to the credit crunch of the past few years many companies have started to look closely at credit risk.  Credit companies and your traditional lenders have had to completely overhaul their lending policies as well as taking a closer look at credit risk.

Man Managing Debt

When speaking of credit risk what we are speaking about is the risk that is involved when offering a customer a credit card, a loan, a mortgage or any other financial product available. Depending on what type of a loan you are giving or being considered for will depend on the amount of risk that is being entered into.  For example, if you are a lender and you are giving a secured loan, the amount of risk will be minimal due to the fact that the installment loans are secured by collateral.  However if the loan is unsecured with no collateral involved the risk will be greater.

There are companies who specialise in assessing how much risk is involved with the lending process.  These companies will go through every aspect of a person’s credit to assess the risk and will let the lender know what kind of risk they are looking at when considering loaning to that person.

Credit rating

A person’s credit rating will follow them everywhere they try to go in life.  It is very important for you to take special care of your credit score and your credit history.  Your credit history and score are looked at every time you apply for a new loan or a credit card.  Lenders do not want to lend money to someone who has a poor credit score and some lenders will not even consider lending to those who have late payments, slow pays, bankruptcy or charge offs.

There are other advantages to taking care of your credit rating.  You will find that lenders will be more willing to give good interest rates when you have a good credit score.  Usually the higher your credit score is the lower your interest rate will be.  Without a good credit history and credit score you will find yourself with high interest rates as well as not being able to obtain a large amount of cash for your loan.  It pays to have a good credit rating.

What many people do not realise is that many potential employers are now looking at credit scores before hiring employees.  You might find yourself the best qualified for the position you are applying for but due to a poor credit score you will not be hired for the job.  This is because employers are looking at credit scores to judge how responsible the possible employee is.  If they are not capable of keeping their own credit in tack, what makes them think that they will be able to handle the responsibilities of the job they are applying for.

Credit report

A credit report is a very important tool when it comes to your finances.  The credit report is like a report card of every financial transaction you have ever made.  It will show any current debts that have been paid off as well as anything current you might have outstanding.  The report will show what your current balances are, the highest amounts you have owed, and what your credit limits are on each account.  It will also show any negative information such as late payments and judgments.  These reports are very important for any creditor to see because it will help them to decide whether they should grant you a loan or not.  It is important to know what is on your credit report.  You can obtain a copy for free once per year from each of the credit reporting agencies.

Bad credit

If you find yourself in the position of having bad credit you should get to work immediately trying to correct the mistakes.  Even though there are such things as bad credit loans and secured credit cards you will find that you will pay high amounts in interest as well as additional fees simply due to the fact that your credit is not so good.  You can start to get help in repairing your credit through credit counseling services that are trained to help you get back on the right track.

Conclusion

There are many aspects of credit when it comes to personal finance or even the finance of business.  It is important that you remain on top of things so that you can receive the best interest rates as well as any other perks that comes with having the best credit possible.

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