Before I get into this article – “Education Loan Hack! Credit Score and its Importance in the US” I want to ask you a couple of questions.
What are the odds of –
Being ambidextrous?
Getting struck by lightning?
Finding a four-leaf clover?
Winning the lottery?
If you guessed 1 in 100, 1 in 3,000, 1 in 10,000 and 1 in 292 million then you can very well get into one of the best universities in the USA!
However getting into a Harvard or Stanford or even MIT can set you back a lot…money wise. One way to get past this is by securing an education loan.
Seems simple, right?
Well, it is*. An education loan to the USA can take care of all your expenses, and I mean ALL of them. Tuition fees, student accommodation, transportation, insurance, visa and a lot more! Make sure you secure an education loan through UniCreds, the only education loan marketplace that allows you to get quotations from all the leading lenders in the country.
Just like the odds mentioned above, a Credit Score is the likelihood a person will pay their debts.
*subject to a good Credit Score
This little asterisk can spell the end of your education dreams to the USA. It is essential to have a good credit score in order to secure a fully-funded education loan to America. This article will tell you all about Credit Score and its Importance in the US. So, let’s dive right in!
What Is A Credit Score?
A credit score is a three-digit number that measures how likely you are to repay a loan on time. Lenders (think banks and NBFCs) use credit scores to evaluate the risk of lending money to consumers. The higher your scores, the more likely you are to qualify for study loan in USA and credit cards at the most favorable terms, which will save you money.
So, Is It The Same A Credit Report?
Not quite. A credit report is a brief explanation of your credit history. Credit Reports state when and where you applied for credit, whom you borrowed money from, and whom you still owe. Your credit report can also tell if you’ve paid off a debt and if you’re making monthly payments on time.
Credit Score and its Importance in the US
The basic principle of a credit score is this –
| High Credit Score | More likely to get loans |
| Low Credit Score | Less likely to get loans |
A good credit score ensures that you get many advantages over those having no credit score or those having a lower score. People with a good credit score are entitled to the following benefits –
- Lower interest rates and better terms on credit products
- Improve your chances for credit card and loan approval
- Access to the best rewarding credit cards
- Get approved for a higher credit limit on your credit card
- Eligible for a pre-approved loan offer
How Is A Credit Score Actually Calculated?
Every credit bureau has its own credit scoring model which they use to compute your credit score. Even though your score may be different, there are factors that each bureau takes into consideration are the same which are as follows –
- Payment History: 35%
- Credit Utilization: 30%
- Importance of Credit History Length: 15%
- Credit Mix: 10%
- New Credit: 10%
There are several credit scoring models but the most popular one used today is the FICO score. This credit score in the United States is used by the vast majority of banks and other lenders, and is based on consumer credit files of the three national credit bureaus: Experian, Equifax, and TransUnion. Because a consumer’s credit file may contain different information at each of the bureaus, FICO scores can vary depending on which bureau provides the information to FICO to generate the score.
The Fair Credit Reporting Act (FCRA) that acts as a watchdog against Equifax, Experian, and TransUnion, and requires these consumer reporting companies to provide customers with a free copy of their credit report once every 12 months.
What Is A Good Credit Score To Get My Education Loan?
Although scores vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
As mentioned earlier, higher credit scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit.
What Are Some Things To Improve Credit Score?
Start by checking your credit score online. When you get your score, you will also get information about which credit score factors are affecting you the most. Payment history and credit utilization ratios are among the top indicators in many critical credit scoring models, and together they can represent up to 65% of a credit score, which means they’re hugely influential. If you focus on the following actions, it will help your credit scores improve over time.
- Pay your bills on time.
- Pay off debt and keep balances low on credit cards and other revolving credit.
- Get credit for making utility and cell phone payments on time.
- Apply for and open new credit accounts only as needed.
- Do not close down unused credit cards.
- Do not apply for too much new credit. This could result in multiple inquiries.
- Dispute any inaccuracies on your credit reports.
Final Thoughts
Here are the key takeaways from Credit Score and its Importance in the US –
- Credit Scores play an important role in a lender’s decision to offer credit.
- The FICO scoring system is used by many financial institutions.
- Factors considered in credit scoring include repayment history, types of loans, length of credit history and an individual’s total debt.
- One metric used in calculating a credit score is credit utilization or the percentage of available credit currently being used.
- It is not always advisable to close a credit account that is not being used since doing so can lower a person’s credit score.
FAQs
1. What Is A Credit Score?
The creditworthiness of a consumer is indicated by a number between 300 and 850 called a credit score. A credit score is a three-digit figure that estimates your likelihood of making timely loan payments. Credit scores are used by lenders such as banks and NBFCs to assess the risk of extending credit to customers.
2. Why Is My Credit Score Important?
Lenders see your credit score as a key indicator of your capacity to repay loans. The amount of loan you will get, the interest rate on your loan, and the type of credit card you will get, depend on your credit score.
3. How Is My Credit Score Computed?
Your Credit Score is computed by the total amount you owe, the types and quantity of accounts you have, and the ratio of your debt to your available credit. Smaller amounts may boost your credit score if you make on-time payments, but larger balances and maxed-out credit cards will lower it.
4. What Does My Credit Score Range Imply?
A credit score runs from 300 to 850 points and is a numerical rating that measures an individual’s ability to repay a debt. A borrower who has a higher credit score is considered to be less risky and more responsible. Credit scores between 580 and 669 are regarded as fair, 670 to 739 as good, 740 to 799 as very good, and 800 and up as outstanding.
We hope you enjoyed reading this blog on Education Loan Hack! Credit Score and its Importance in the US. If you wish to read similar blogs, here are some links that you could check out –
- Affording Travel Without Credit Cards! Here’s What You Need To Do
- Student Loans and Credit Reports
- What Should You Know About Transcripts?
If you’re someone who wants to share your valuable experiences through a blog, we’re more than happy to collaborate. Write to us at contact@unicreds.com to know more about our guest-post submission process. If you need any assistance with student accommodation or scholarships, head over to UniAcco and UniScholars respectively.
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