What a Credit Score Does


Credit scores are used by lenders, credit card companies, employers, and even insurance underwriters to evaluate the potential risks of a potential borrower, if loans, policies, employment or mortgages are granted to them. The credit scores help these lenders to mitigate the losses which can occur with a person of lesser credit. On the basis of these credit scores the lenders decide who should get loans, the principal amount that is safe to loan, interest rates and other charges.

 

 

This process is also known as identity scoring and is done prior to authorizing access or granting credit. It is a trusted system and has been used for years by lenders. Credit scores are also checked by banks and other organizations like mobile phone companies, utility and cable services, and many other companies looking to evaluate potential customers or employment candidates.

 

credit rating


Plainly put, a credit score can affect nearly every aspect of your life.  For those who believe that a bad credit profile will just affect their chances of getting another credit card and let their credit falter, there will be many unpleasant surprises down the line.  Employers are one of the biggest and newest areas of growth for credit reviewing.  Your credit score could mean you losing out on that next job opportunity you are looking for.  Find out what’s in your credit report, what it means to you specifically, and how to get your credit profile righted quickly.

 

Risks Posed Due to Low Credit Scores

 

Those with low credit ratings are at a financial risk compared to those with good credit scores. The lower credit scores eliminate the easy and more affordable options of getting loans and mortgages. Due to bad credit ratings many employers may now refuse to hire an applicant. Then there are various lenders who refuse to grant loans and mortgages to bad credit borrowers in any form or only with excruciatingly high interest rates. The loans which are available to these poor credit performers are usually very high interest ones, some with double-digit numbers.   These high-interest loans will cost the low credit scorer thousands of dollars in the long run. With poor credit ratings the financial necessities like credit cards and debit cards are also not easy to come by, making daily life that much more difficult.

 

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Running a Credit Score

 

credit ratingThere are two principal ways in which credit scores are run. The first is through the lenders who simply want to evaluate the potential of a prospective borrower. This is completed before they even get to asking you whether or not you are employed and have the money to make payments: your credit score is their paramount concern. Then the second is through the potential borrower pulling a credit score themselves. When debtors and borrowers check their credit scores themselves it is also known as a soft pull. This has no affect on the lowering of the credit scores. It is only when these scores are converted to credit inquiries that these credit applications began to pose a problem. The increase in the number of inquiries leads to further downfall of credit scores.

 

Results of Too Many Inquiries

 

As a result of too many inquiries credit scores of consumers may suffer and their results are felt quickly. This happens especially when there are too many inquiries in a short period of time.  Creditors and the FICO scoring system refer to this as a potential “credit run”. This means it looks to them like you are trying to pull out all the stops and borrow from every source of credit you can get your hands wrapped around.  This usually happens when someone loses their job, is having a personal social issue like drug abuse or gambling debts, or someone is simply living way out of their spending means.  All roads lead to the same conclusion for the lender:  high-borrowing risk.  Too many inquiries should be avoided whenever possible.  There are other options available to you to reduce your inquiries from mounting:

 

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There is one exception to inquiries and their accumulation in a short period of time.  When searching for a mortgage and trying to get the best deal, this accumulation of mortgage related inquiries will not be tallied against you.