In this article, we will explore the basics of credit reporting and give you an overview of how it is used, how to find out where you stand and what it actually means. Loan Now feels that this topic is especially important because as stated in previous articles like in our “Getting a Personal Loan Vs. Getting a Credit Card” post and on our Know your score page we imply and address just how important find out that information is relative to obtaining unsecured loans. If you are one of those consumers who after reading this post find out that in your quest bad credit personal loans will have to suffice than this will help you obtain one fast and more efficiently than you would of otherwise. Personal loans or unsecured personal loans and credit go hand in hand you should be able to identify your credit type so that you make the right choice in obtaining any type of loan. Credit is not some scary unknown so let’s begin with a simple question, what does my credit score represent?
What Your Credit Score Represents
Essentially your credit score and report represents your risk, that is the level of risk that the bank sees when deciding to lend you money. This level of risk is based on your history, it shows how you have handled the responsibility of borrowing over a period of time. It represents your financial history and on a more personal level some believe your own responsibility level. If you have made errors like missing payments, filing for bankruptcy the bank will be able to see that as well. You credit report is like a financial report card and the higher you score the better it is estimated you will be in repaying the funds you borrowed. More than that your credit report also shows other things which most people overlook. It shows how much money you owe or one piece of the equation of your DTI or debt to income ratio, which when you provide a formal application and declare your income banks and lending institutions use to gain a full picture. In addition to that, a bank or financial institution can see if you are overextended or deep in debt. An example of this would be a consumer who has an excellent credit score, an acceptable DTI ratio and makes 40K a year but has 30K in credit card debt might not be a good candidate in their eyes. Yes in unsecured loans or personal loans and lending there is a human aspect, the banks assuredly want to know that they after a period of time can recoup there loan with a bit of interest. They take into account the “end game” how long can this individual go on racking up debt and making minimum payments before they have some sort of financial or personal catastrophe and have to default. The final piece of data we want to point out is another aspect and one of the most important that a lot of people never notice. In fact we think that this aspect is so often overlooked by consumers seeking out bad credit personal loans that one of our primary objectives using our Loans Now Discovery process is to circumvent this problem all together. Loans Now is very successful in helping our clients obtain personal loans for bad credit easily because we are aware of this, we embrace it and try to educate all of our clients seeking out unsecured loans. What the banks see and look for on your credit report is how many times you have applied for credit.
People are often denied credit because they assumed that they could apply at multiple institutions or go “shopping for the best interest rate.” That is not the case and banks and financial institutions see it entirely differently. This is especially detrimental to those desperately seeking out personal loans for bad credit or bad credit personal loans. Often these consumers are in a financial bind and unknowingly apply at as many places as possible in hopes that someone will lend them funds. This is the worst way to go about seeking out and loan and we at Loans Now and with the Loans Now discovery process discourage this by slowing the pace, talking one on one, helping to restrain the emotion that everyone feels when in a financial bind. If you have multiple inquiries on your credit report in a short period of time we feel and have seen that banks and financial institutions see this as a red flag. They begin to ask the question, why is this person seeking out a loan? Are they moments away from a financial collapse? Is there financial situation so dire that they will take anything? As you can see most banks see these individuals not as candidates or shoppers but as extremely risky.
How Are Credit Scores Calculated?
First, let’s address who the credit score providers are? Experian, Equifax, and Transunion.
One of the biggest mysteries is how do those firms calculate your credit score. It is known in the industry that each of the three credit reporting agencies keeps this information private and it is proprietary. The three reporting agencies have their own algorithm to “score” people. That is one of the many reasons that while you may have an excellent rating with say Transunion you may have a fair score with Experian. The credit rating agencies provide a service to lenders so that the lenders can make the most accurate prediction when deciding to lend out personal loans. While in this article we will not speculate on how those markets work, we will say that it has become apparent to us that certain financial institutions value some credit reporting agencies data over others. That has not been stated publicly nor is it published on financial websites. With that here are the basic principles of which most of the public holds to be true. We cannot verify this as we said the scoring system is proprietary to each credit score provider.
The 45% rule is widely used in the industry when advising on revolving trade lines. It states that you should only use or keep your balance on things like credit cards at 45%. That means if you have a revolving tradeline with a limit of $100, and use it to its limit it is best that your payment that month be $55. It is also wise to check and double check to be sure that you make all payments on time. Finally, a lot of people in the industry advise that you keep at least three trade lines open. That is to say that you might have three credit cards, or a credit card an unsecured loans and an auto loan. Applying those tactics and monitoring your credit ( to find out more see our Experian page) will help you obtain a healthy credit score, which will make your hunt for unsecured loans that much easier.
What are the Different Credit Types?
A lot of people divide credit into four types, leaving the 5th to be no credit history. They do this so that the average consumer can identify their credit quickly when searching for auto, home or unsecured loans. Depending on the credit agency is the number scores typically range for 300 being the lowest to 850 being excellent. What most consumers find are scores ranging from 450 to 750 again 450 being the lowest and 750 being the highest. We have seen scores as low as 300 and scores as high as 850 but for the purposes of this article, we will stick with what is presented most.
Having excellent credit is obviously very handy when seeking out loans of all kinds especially unsecured personal loans and credit cards. Consumers with excellent credit tend to get solicited by financial institutions offering them lines of credit and credit cards most of which have lower interest rates and higher maximums.
The Excellent Credit Range is 850-721
The consumers that fall in this category have minor errors on their credit report, but they are solicited as stated above and usually have minimal problems in obtaining unsecured personal loans and credit cards. There is a small difference though as they pose a slightly higher risk than an excellent credit consumer so often they are not given as favorable rates when seeking out an unsecured loan or other tradeline.
The Good Credit Range is 660- 720
A lot of the consumers we work with fall in this category, They might have had a few errors on there credit report of even possibly a bankruptcy in the past but they are making efforts to climb back into the good credit range. Fair credit consumers sometimes lump themselves in with bad credit and specifically search out personal loans with less than favorable terms. We see this all to often and we remind people that you may still obtain a loan with moderately favorable terms if you do your due-diligence. The Loans Now Discovery process is a great way to start.
The Fair Credit Range is 600-659
The consumers who fall into the bad credit range have a harder time acquiring new credit.
While this is obvious you should not be ashamed if you fall into this category. Often in life things happen, you lose your job, you lose your business, miss a few payments or have some other life-altering moment. Having bad credit is not the end of the world, there are still opportunities to grow your credit profile and obtain new lines of credit. Yes, they might not be the most favorable terms but everyone needs to start somewhere. Loans for people with bad credit are abundant. Personal loans bad credit is a search term we hear of often and something we specialize in especially when consumers use the Loans Now Discovery process.
The Bad Credit Range is 599-450
Consumers who lack a credit profile or have no credit and no credit report tend to fall into the younger category. It is always important to establish some sort of credit profile even if at that time you don’t necessarily need credit. This will make things easier in the future when you do need credit. Establishing a credit profile should be something taken seriously as it will follow you through life and affect you in many ways. If you have children, it is smart to talk to them about credit and help them understand how credit works and its benefits and its uses. It is also smart to monitor your credit even if you are just starting out. You can find more information on how to obtain your own credit report on the Know your score page and about monitoring your credit on the Loans Now Experian page.
In and effort to better educate our clients we wanted again to state our mantra that knowing where you stand is essential in finance. Too many times people find out that they have a Bad Credit score and give up. They do not realize that time like in life heals wounds and it does so in the credit space as well. Many times we are asked if we facilitate loans for people with bad credit, begun the Loan Discovery process and find that the client’s score has gone up and they now fall into the Fair Credit space. Don’t worry the Loan Discovery Process works for all credit types, but that is good news and many of our customers are ecstatic when they find out that they can receive more favorable terms.
While you can get loans with no credit check, there are several other products priced according to personal credit as well, and a borrower can make the most of his or her budget is a good credit consumer.