A Borrower And His Credit Scores

Having a good credit score is important, especially for an individual who intends to make a loan

. Favorable ratings may allow one to borrow at a cheaper cost, while poor grades may make it difficult for him to seek low-interest loans.

There are cases when even a very meager difference in credit ratings could spell a big difference in borrowing cost. For instance, a lender may slap different interest rates depending on a certain threshold level it observes. If the threshold was set at 700, a person with a rating of 698, although already close to the threshold, will suffer from being imposed a much higher borrowing rate than someone whose grade is 701.

Clearly, it pays to be conscious about these grades.

If one has favorable evaluations, these may be used to haggle before a bank or any lender for a much lower charge.

Experian, TransUnion, and Equifax are the three primary credit bureaus. They are tasked with assessing people's worthiness to enter into any financial transactions.

A person who intends to tap a bank loan will most likely undergo a background investigation to be ordered by the lender. One way for a lending firm to know if a borrower should be given a loan or not is to look at the latter's credit standing, information on which is provided by the three evaluating firms.

Having good scores, therefore, mean facing a greater chance of having one's loan application approved or of being provided funds at an affordable borrowing cost.

One's ratings are a reflection of his payment habits and financial discipline. Some companies think that these evaluations even reflect one's level of responsibility.

To improve a person's standing entails on-time--and better yet, advance--payment of monthly bills and other financial obligations. A borrower should not wait for maturity dates before settling his liabilities. Delayed payments may force banks or other concerned companies to notify the evaluators, which in turn may decide to slash his ratings.

However, evaluating companies are not always faultless. There are instances when they erroneously compute grades. This happens when the information provided to them and which they use as basis in calculating grades is incorrect. For instance, an evaluator may have been misinformed that a debt of an individual remains unpaid when in fact it has already been settled.

Given this, it is vital to monitor one's evaluations prepared by these companies from time to time and check for possible errors. Otherwise, one might suffer adverse consequences of having unfavorable assessments he does not deserve.

by: Leo Chu

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