Credit Scores and Credit Reports (Everything You Need to Know)

A credit score provides lenders with an insight into the likelihood you will pay back a loan on time. This lets them decide whether to give you credit or lend you money.

Credit scores are based on personal and financial information in your credit report.

Knowing your credit score helps you negotiate better deals or have an idea why the lender rejected your loan application.

How credit score is calculated

Your credit score is calculated based on your credit report. This may include:

• Amount of money you’ve borrowed
• Number of your credit applications
• Frequency of your payment

According to Veda Advantage, a credit score of +200 represents odds of 1:1. This means the applicant has a 50% chance of having an adverse event on their credit file in 12 months.

For every additional 100 points, the odds double. This gives the applicant less chance of having an adverse event on their credit file.

A +300-credit score means the applicant has a 33% chance while +400 shows a 20% chance of having an adverse event on their credit file within 12 months. With this understanding, it is clear why a borrower may experience difficulty in obtaining finance with low scores.

Improving your credit score

A lower score affects your ability to get credit or have your loan approved. Lenders will consider you less risky when you get a higher credit score.

Here are ways to improve your credit score:

• Limit the applications you make for credit
• Lower your credit card limit
• Pay your rent or mortgage and utility bills on time
• Make sure that you pay your credit card on time every month – whether it is a full payment or more than the minimum repayment

Doing these steps will help you improve your credit score, especially when low.