How Are Credit Scores Used By Lenders And Creditors?

Approve Credit With Credit Scores

The logic about credit scores is that how you have paid your bills in the past is how you are likely to do so in the future. Therefore, a creditor looking at your credit scores will be basing their lending decision on what you have done in the past. It may not be fair, but it is the way the credit scoring system in US works.

As just mentioned, many credit decisions are based on your credit scores, or what you have done in the past. If you have high credit scores that means you have maintained a good credit history and profile. It also means that you are probably not a huge credit risk.

For credit cards and even car loans, you may get approved in just minutes because the decision to extend you credit is based on a machine reading your credit scores when the creditor pulls your credit. For example, if your scores are above some cut off number then you are approved, if below then you are denied.

Low credit scores usually mean the creditor will either not extend credit or if they do they charge higher interest rates and lower the amount of the credit limit they will give. With lower scores, you may have to prove employment or income. On the other hand, high FICO scores generally mean lower interest rates and higher credit limits. In some cases, you may not have to show anything more than your credit report and scores to get approved.

You might be thinking that if you have made mistakes in the past with your credit report how do you recover to have higher credit scores in the future. Time in many cases is one of the biggest ways to recover as older delinquencies in a credit report weigh less and less in determining the credit scores.

Typically, your credit history in the last 12-24 months plays the biggest role in what your credit scores will be. With time, comes making your payments on time. As you string together more and more months of on time payments to your credit accounts your credit scores will improve. So time and making your payments on time are two of the biggest factors in improving your credit scores.

Learn ways to improve your credit.