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Obtaining a loan is a financial journey and the first stop is knowing your credit score. Your current fiancial situation directly affects your ability to obtain a loan as well as partially dictate your financial freedom in the future. You must be prepared before you apply for a loan, and discovering your limitations and will predict what type of loan is realistic and right for you.
First off, before you apply for your loan there are some simple steps you can take to save time and money. One of the most important areas is your credit score. It is important to know your credit scores before you apply for a loan. Knowledge is power. By knowing your scores before you apply, you won't be surprised and can correct any possible errors on your report.
Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a loan. A total number of points, a credit score, helps predict how credit worthy you are, that is, how likely it is that you will repay a loan and make the payments when due.
What exactly is your credit score? Your credit score is a number derived from a pool of information consisting of bill payment history, how many and what type of accounts you have, any record of late payments, collection actions taken against you, the age of your accounts, and all your outstanding debt. Creditors then apply a statistical program to your information as well as the information of your financial peers. Your actual credit score number is then extracted from a system that awards points for each factor you have that helps predict your likeliness to repay said loan in a timely manner. Thus, the more points, the better your score and the better your probability of receiving approval.
In recent years, more and more lenders are relying on something called a FICO score whenever you apply for a loan. Your FICO score is a number that is mathematically generated based upon your credit report. This number is then compared to millions of other people. This result very accurately predicts how likely you are to pay your bills. The higher your FICO score, the more likely you are to get a loan approval.