You’ve probably heard the term “credit scores” one too many times. What exactly is it? How does it affect you? When do people look at my credit score? Let’s say you are looking to take a personal loan from a financial insitution. Lenders will need an indicator to know whether a person will default on a loan or will pay faithfully. Today, the credit score is that indicator. People with a higher score are good debtors who pay their debts on time. Those with poor credit are poor at paying back and represent a higher risk of default. People who hold an average score can go either way. Banks and other financial instituions rely heavily on the credit score to find out if one is going to pay back their money or if they will default on payment. The credit score might sometimes be used to determine how much interest one will be charged for a loan. Good credit scores attract the lowest rates because the chances of loss are less. People with average credit scores tend to get a higher interest rate than those with good scores. Poor debtors, those with bad credit, will usually be charged very high interest rates because they are a great risk to the lender. In charging very high interest, the lender is mitigating risk, and hoping they can recover as much money as possible before the person defaults, if he or she does choose to default. Loan Approval And Credit Score It is important to understand how credit scores affect loan approval. Basically, most traditional banks and other lenders will refuse credit to those with a poor score. This means that applications will be rejected repeatedly until one is able to improve their score. Licensed moneylenders in Singapore have more lenient requirements where the credit score is concerned and have even designed loans for people with poor credit. The challenge is that they too might not take a big risk on such a person. Therefore, such a person can only get small loans approved. When they need to take out big loans such
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