What Happens With A Credit Check?
When your credit gets checked it is usually because you are trying to obtain some kind of credit
. This could be an auto or home loan, 90 days same as cash, or a store credit card.
The company with which you are working will check your credit to determine your eligibility for borrowing from them. They look at your credit report to understand some of your present and past financial commitments.
A credit score will show the lender how you manage your finances and how responsible you are. There is no law that says a lender has to loan you money with a certain credit score.
They will determine what credit score they will allow when they put up risk for you. The higher the score, the better the loan and interest will be though.
The credit score is looked at to appraise your credit eligibility. They use a mathematical scoring system to determine the "risk" that comes with lending money to that particular borrower.
Some institutions are actually quite sophisticated and will only lend to people with polished records and high scores. They give the lowest rates to those people as long as their requirements are satisfied.
If you have late payments or ignored items on your credit within a six year period, prime lender will typically not approve you for the loan.
Sub prime lenders are lenders who provide money to those with less than perfect credit records. People with no, or poor, credit can usually qualify for a loan with a sub-prime lender.
There are things you need to check for when considering a loan, no matter your reasons. The most important factor is if it is affordable for you.
Just because you can get the loan doesn't mean it is going to be the cheapest for you. While your monthly loan payment may look okay on paper, you need to take a peek at your budget to determine if there really is money there to pay the loan back each month.
Once you've listed all your incoming money and outgoing expenses, you can see if you can even afford a new loan payment. So figure out what your payment can be and see how much loan you can qualify for that will fit into that payment.
Pay attention to the small print. Most lenders have a clause in the contract between your information and theirs that entitles them to charge you penalties if you pay the loan back early.
Sometimes paying off your loan early can cost you money. Check with the lender to find out if there is an early payoff fee attached to your loan.
You have to consider that lending institutions make money on the interest that you pay on a loan. If you have a 12 month term and pay your loan off in 3 months, then the lender doesn't make money on your loan.
This is why it is smart to ask if there is a prepayment penalty. If there is not, then the sooner you pay off that loan, the better!
One way that people find paying loans easy is to have automatic drafts taken from a checking account. This can ensure that you never have a late payment mark on your credit history.
Also find out what happens if you make a late payment. What are the fees?
Does your interest rate go up automatically? Credit card companies are notorious for doing this.
One late payment, even one day, can send your good interest rate of 13% up to 25%! It can be a downward spiral so make sure you have this information.
It is always a good idea to shop around before choosing a lender and a product.
by: Jack Landry
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