Though credit scores have little effect on the qualification process for payday installment loans, there are still interactions between these loan products and your credit history. It is very important to know them if you are interested in keeping a healthy financial life. Credit scores may have nothing to do with the approval of loans for poor credit, but these have big implications on the qualification process of other financial products, such as credit cards, other personal loans, and home mortgage loans or home equity loans.
In addition, it is essential for us to know the facts and fallacies regarding credit scores. This will be a good guide during application for loans for poor credit, such as payday installment loans.
Fallacy: My credit score determines whether or not I get a loan.
Fact: Payday installment loan lenders use a number of facts to make credit decisions, including your FICO® score. Lenders may look at information, such as the amount of debt you can reasonably handle compared to your income, your employment history, and your credit history. Based on their perception of this information, as well as other specific underwriting policies, lenders may lend to you although your credit score is low. Everything depends on the prerogative of the lender.
Fallacy: A poor credit score will be my torture forever.
Fact: Surprisingly, the opposite is true. A credit score is like a “snapshot” of your risk at a particular point in time. It will change as new information is added to your bank and credit bureau files. Credit scores change gradually as you change the way you handle your loans and other credit lines. For example, past credit problems affect your credit score less as time passes. Lenders of loans for poor credit usually request a current credit score when you apply, so they have the most recent information available. Therefore, by taking time to improve your credit score, you can qualify for more favorable interest rates.
Fallacy: Credit scoring varies according to social status.
Fact: Credit scoring considers only credit-related information. Therefore, gender, race, nationality and marital status are not counted. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders of loans for poor credit from considering this type of information when approving loan applications. An independent research was done to make sure that credit scoring is not unfair to minorities or people with little credit history. Credit scores have been proven to be an accurate and consistent measure of repayment for all people who have some credit history.
Fallacy: My credit score will drop if I apply for a new line of credit.
Fact: It may, but won’t drop much. If you apply for several credit cards within a short period of time, multiple requests or inquiries for your credit information will appear on your credit report. Looking for new credit lines can equate to higher risk but most credit scores are not affected by multiple inquiries. Typically, these are treated as a single inquiry and will have little impact on the credit score.
These facts and fallacies regarding credit scores can serve as your basic guide when applying for loans for poor credit. A well informed decision results in a sound outcome.