Do you know your credit score? Do you know what a credit score is and why it’s important? Does a credit score matter when you are applying for a payday loan?Anytime you take out credit in the form of a mortgage, auto loan, boat or RV purchase or credit card, the creditor you are applying with and possibly borrowing from looks at you credit score before approving you to see if you will be a low or high-risk borrower in terms of repaying your loan. The term “FICO”, which is an acronym for your credit score, came from the Fair Isaac Corporation who created the algorithm to calculate consumers’ credit score.
The FICO score has become the basis in which borrowers are approved for credit. A consumer’s credit score will determine how much someone can borrow and what interest they will be charged. Of course, the better the score, the more purchasing power granted to the consumer as well as getting a better rate and any other perks that come along with being responsible financially.
A person’s score is determined by several factors:
Credit scores range from 300-850. On the low end you’ll most likely be denied when you apply for credit or will be approved but at the highest interest rates possible. When you reach the 651-710 range you will start qualifying to receive credit at moderate, reasonable rates. Once you get up to 711 you will be seen as having a good credit rating and will be eligible for competitive interest rates. Alas, when you have skyrocketed your score to over 751, you will been seen as the credit “cream of the crop” and will enjoy the lowest and most competitive rates with the advantage of being granted more purchasing power with higher spending limits.
In almost every situation where you apply for and are granted credit, you score will be considered. That score will also be affected every time you make a payment; positively or negatively. Credit worthiness affects many aspects of our financial lives. Health and auto insurance companies now run a person’s credit to make sure they are responsible enough to pay their insurance premiums.
In some cases an employer will run your credit to get an idea of how responsible you are. There may be a link to how responsible you are financially and how you will be as an employee. The Society for Human Resource Management says that 60% of employers utilize a potential employee’s credit report at some point and time in the hiring process.
Every time you make or default on a payment, your creditor will report it to the credit bureaus and your score will be affected. Payday loan lenders don’t use your credit score when determining whether or not to lend to you. Payday loans are short-term loans that are considered high risk because of this very reason. Consumers with bad, little or no credit at all have a better chance of getting one of these “quick cash” loans. Although the lender will not look at credit history, those borrowers who are looking to raise and/or improve their credit score will not benefit from a payday loan.
In the case where a borrower does not repay their loan, the lender will not report to the credit bureaus but will most likely sell the bad loan to a third party collector. You can be sure that collector will report the default.
Our credit score follow’s us wherever we go. Sometimes we don’t realize how much our lives can be affected by a high or low score. Making payments on time and not defaulting on creditors is a sure way to keep a good score and have as much purchasing power as possible in the future.