Most dreams of financial security revolve around the approval of loans. Be it a vehicle, a business idea investment, or that perfect house, a loan can be the shot in the arm that takes you there. But, of course, getting approved for one has never been simple. And around the world, including the UAE, there is one big determining factor that sets you up for success: that almighty credit score.
Understanding Your Credit Score
Think of your credit score as a grade on your financial report card. It is a three-digit number, usually between 300 and 900, that reflects your creditworthiness. Credit bureaus derive this score based on your history of handling debt and how well you have met your financial obligations.
Why Does Your Credit Score Matter?
A credit score is one of the most important parameters for loan consideration, and it is attached to risk to banks, credit unions, and online lenders, among others. To such lenders, a high credit score would go further to prove that you are creditworthy; therefore, they stand to gain more from your being indebted to them.
Your credit score globally affects your loan application in the following ways:
Loan Approval:
A good credit score means a credit score that is within the specific range, which varies from country to country. This greatly increases the chances of approval for a loan. Conversely, a low score might lead to loan rejection.
Interest Rates:
The offered interest rate on your loan highly depends on your credit score. In the end, globally, a good score would mean lower interest rates and save you a lot of money over the period of your loan. A low score may have the opposite effect: higher interest rates, meaning borrowing is more expensive.
Loan Amount:
Credit scores are always equal to a higher likelihood of approval for larger loan amounts, simply because lenders will feel more confident in your ability to handle bigger debt loads.
Beyond Loan Applications
The impact of your credit score is not just limited to lending approval; it also may have influence over the following, subject to specific country regulations:
- Credit Card Applications: A good credit score will open doors to better offers, such as higher spending limits and great rewards.
- Rentals: In some countries, your score will be taken into consideration by landlords when they assess you as a tenant.
- Utilities: Just like rentals, there are some utility providers in a few countries that may take your credit score at the time of connection request.
How to Get an Excellent Credit Score Globally
To have a good credit score, and to maintain it, one important step is to pay bills promptly and in full.
- Keep Credit Utilization Low: Do not have your credit card usage at the maximum. Conventional practice is to keep credit utilization (outstanding credit card balance divided by credit card limit) below 30%.
- Check Your Credit Report Regularly: Most countries have credit bureaus that offer free credit reports periodically. Review them for errors or inconsistencies and inform their offices promptly.
- Keep a Healthy Mix of Credit: In most countries, a mixture of credit products, which include both credit cards and loans, will influence your score positively. However, manage them responsibly.
All in all, your credit score is a very powerful tool for opening up any financial opportunity around the world. You have it within you to build a solid credit score by understanding its impacts and using responsible practices that are going to give you the backbone to a brighter future financially, no matter where you live. After all, good credit represents an investment in yourself, with the doors opened to loans, credit cards, and other financial benefits that follow it.