LOANS & CREDIT SCORES

We are dealing here with two very sensitive & extensive topics- loans & credit scores. Both are very important for everybody at some or the other point of time in life. The fact of the probability that nobody needs any loan in his/her lifetime is almost nil. People need different types of loans for different purposes. Some need it for purchasing property, some to start a business, some for financing education, some for buying vehicles and some for repaying previous debts. Loans are available for each & every purpose nowadays, unlike the scenario before some years, where people had to crave for getting loans. Loans are the fastest mode of cash, which anybody can avail for any purpose.

But, the genuine question that rises is, is it advisable to take loans-may it be for any purpose? Loans may lead any person to become bankrupt, intentionally or un-intentionally for its repayment. Money is such a matter that anybody can get enticed to have it & satisfy their luxurious needs. So, it is rather more advisable to think is it really necessary to take loan or how much to take depending on one’s capacity. This is more important to think of before taking a loan.

The other thing that can affect one’s life is the credit score. Credit score is the figure given by the 3 major Credit Bureaus-Equifax, Transunion & Experian, which have the complete record of credit transaction information of all the citizens. The Credit scores are dependent on the credit reports these bureaus have. The question here that rises is what is the connection between taking loans & the credit scores? These two factors are very highly connected and dependent on each other. Your credit score depends on the amount of loans taken by you, your payment patterns, etc. Loans are just another form of credit which affects the credit score very drastically.

Given below are the effects on your Credit Score due to your loans:

• Your credit score can be affected by the amount of loans taken by you in how much span of time. How many loans do you take & and of how much amount, are the major factors that come into the scenario.
• Your payment patterns also make difference in your credit scores. More defaults and delays in payments result in decreasing of your credit score. If the repayments or the installments are made on time, without any delay, the credit score is not affected.
• Your purpose of taking a loan also makes difference in your credit scores. For e.g., if you take loan for any luxury, though you are not in position to repay it on time, will affect your credit score adversely. If you take loan for fulfilling any basic amenity like education or purchasing new house, as per your repayment capacity, your credit score will not be affected then.
• Your history of credits types & patterns also affect your credit scores. If your history of credit has the information of you defaulting, then definitely your credit score is going to be affected.

These are main effects on your credit score due to your loan activities. So, it is better to keep yourself clean in your credit activities like loans, if you do not want to get into any serious issue with your credit scores. The bad credit scores also have the same visa versa effects in case you want loans. In such cases, you will either be denied for the loans or more interest rates will be charged upon you.

Because of all these reasons, it is better to avoid taking loans, if at all you can, or else, take loan only if you have the capacity of repaying them on time. You should always keep a back-up for the repayment, in case your regular income source gets blocked due to any reason, so as to nullify the late payment situation.