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How Credit Scores Affect Interest Rates

It is a primary concern for those with a mixed credit history when considering applying for any type of finance. Not only the prospect of being declined for a loan, but also the possibility of any loan coming with higher interest rates. Moolr have taken a look at how credit scores affect interest rates.

Your Credit Score

Your credit score represents your overall credit history. It is a snapshot of your financial history, of your dealings over the past six years or so. It’s based on information contained within your credit report. The score is calculated using a raft of factors, which include whether you pay your bills on time, plus the total debt you carry. Lenders consider your score an indicator of how likely you are to repay any borrowed money, be it a mortgage or a loan.

How lenders use credit scores

There is more than one credit agency, and their rules are not identical. However, the general criteria and scores are the same. Credit scores generally range from 300 (the lowest) to 850 (the highest). This number can make a big difference in determining whether you qualify for finance. And the terms you are offered if a lender accepts you.

A higher score increases a lender’s confidence that you will make payments on time. It may help you qualify for lower loan interest rates and fees. Also, some lenders may reduce their requirements if you have a high credit score, regarding repayment terms and the like.

How Credit Scores Affect Credit Rates – Lower Scores

On the other hand, a credit score under 600 could make it harder to get a loan, and your interest rates may be higher. Lenders differ, but they generally consider 670 or above to be a good credit score.

If you already know how to check your own score, then you need to check how good yours is if you’re thinking of needing it in the near future. Whilst guidance was given above, it is not always that simple because the three main credit referencing agencies (CRAs) in the UK all score consumers differently.

How Credit Scores Affect Interest Rates – The Credit Agencies

Each CRA states what a good credit score is on their websites:

  • A good Experian score starts at 700, with 800 considered excellent. 
  • With Equifax it is 660 and above.
  • And Noddle’s best indicator is a 3+ on its 1-5 rating. 

If you have a good credit score, you can save yourself a lot of money on hefty interest rates, because your hard-earned credit rating will give you access to the better rates and deals on all sorts of financial products. This includes credit cards, loans, credit agreements and mortgages.

Conversely, if you have a bad credit rating, you are likely to be offered high interest rates and worse deals, or fail to qualify for credit at all. How credit scores affect interest rates could be crucial to how much you have to pay back on top of what you borrowed. For this reason it is crucial you get your score as high as possible. Check our blog site for tips on how to do this.

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