When you apply for a loan, whether you want to start a business, purchase a home or buy a vehicle, the lender will first assess your creditworthiness when deciding whether to give you the loan or not. If you have a good credit rating, there is a high chance that you will qualify for the loan. On the other hand, if your credit rating is poor, then you may not qualify for the loan. Therefore, before you go looking for houses or vehicles to purchase, it’s first important to check your credit score and evaluate your creditworthiness.

Factors that Affect Your Credit Rating

Credit bureaus use different factors to determine your credit rating. As much as each bureau uses a slightly different method, all of them will assess your payment history, your credit utilisation or amounts owed, length of credit history as well as new credit inquiries.

· Payment History: As the name suggests, payment history refers to whether you pay back your debts on time or not. It entails your payments on retail accounts, credit cards, instalment payments such as student loans, and mortgages, among others. Paying your debts promptly will help your credit score.

· Amounts Owed: This component checks how deeply you are in debt and whether you are in a position to repay what you owe. For instance, if you have high pending balances and you’ve almost exceeded your credit card’s limits, then your credit rating will be affected negatively. On the other hand, if you have been repaying your loan instalments on time, then it shows responsible debt management, which in turn promotes your credit rating Moneyadviceservice provide information regarding debt & borrowing to help you stay on track.

· New Credit Inquiries: If you don’t have a long-established credit history and you’ve suddenly opened several credit lines, then your credit score will be negatively affected.

It’s important to note that you can still credit or a mortgage, even if you have a poor credit rating. But as noted earlier, you will be forced to pay higher monthly payments and higher interest rates. Also, you should keep in mind that different lenders apply different credit requirements. Therefore, ensure you shop around and explore different options to determine the lender that will work for you. 

How Does Credit Rating Affect Your Borrowing Options

In simple terms, a credit score is a 3-digit number, which lenders use to decide whether you qualify for a credit card, a personal loan, mortgage, or any other line of credit. Also, lenders use the credit rating to determine how much interest to charge you for a loan. Every person has a credit score. Credit scores usually range from 300 to 850. The higher your credit rating, the greater the chances of qualifying for a loan. Also, if you have a high credit score, you will receive better terms of credit, compared to someone with a low credit score. On the other hand, if you have a poor credit score, you will qualify for smaller credit lines, compared to someone whose credit limit is high. Furthermore, you may end up missing out on the loan you are seeking completely.

Closing Remarks

As you can see, your credit rating will affect your borrowing options in several ways. While debts are unavoidable, repaying them on time, living within your means, and paying bills promptly will help to improve your credit score. And if you have a higher credit score, you will enjoy favourable credit terms.