Credit Scores and Best Loan Rates

A credit score of a person indicates his creditworthiness.  A person who has been paying all his bills on time and has been prompt in his loan payments would have a high credit score.  A borrower with a high credit score is a lender’s delight.

Credit Scores and Best Loan Rates – The Relationship

A high credit score means that the borrower would not pose much of a risk to the lender.  Since he has been prompt in his bill and loan payments, it is believed that he would continue to make future payments on time.  So the lender is willing to lend and also charges a reasonable rate of interest. 

The inverse holds good for a person with bad credit.  While some lenders shy away from granting loans to such a person, there are many others who are ready to lend but charge an exorbitant rate of interest to mitigate their risk.

Good Credit Scores Lead to Better Loan Rates

  • Improve Credit Score

A person with a low credit score should try to improve the score before applying for a loan.  This can be done by being prompt in credit card payments, loan payments and bills.  He stands a better chance of getting a loan with an improved score.

  • Verify Credit Score

It may so happen that there is a mistake in calculation in the credit score, resulting in the score being lower than what it actually is.  A mistaken low credit score could result in significant loss for the borrower as the lender would charge a high interest rate.  So he should first get the score verified.

  • Negotiate for Better Rates

A person with a high credit score can persuade the lender to give him the best possible rate of interest and also negotiate other loan terms with him.

Though the dividing line between the scores considered good and bad varies over time, depending on the state of the economy and the risk appetite of lenders, good credit scores and best loan rates will always go hand in hand.