While managing your credit score and taking out loans has now become the standard path to financial freedom, so many things about these aspects are left unsaid by the banks. This not only leaves you to figure out these mysteries on your own, but also exposes you to a higher risk of damaging your financial profile due to lack of knowledge.
In turn, it becomes essential that you dig into the workings of credit scores and loans to make sound decisions for your finances. To assist you during this learning curve so you don’t find yourself asking, “How can I enjoy life without jeopardizing my financial goals,” here’s what banks don’t tell you about credit scores and loans.
You Can Improve Your Credit Score After Bankruptcy
Filing for bankruptcy is a major event that can impact your credit score for years to come. Depending on the type of bankruptcy you experience, you may have it on your record for 7-10 years. But this doesn’t mean that your credit score stays diminished for that long. Credit scores are easy to improve to begin with. After bankruptcy, you may start seeing improvements to your credit score within two years if you follow financial best practices.
Your Credit Score Is Not Calculated by Banks
Applying for a loan with a bank is the most popular way to secure financing. But banks do not calculate your credit scores: They are calculated by three major credit bureaus across the United States. This means that when you use a free mortgage loan calculator to buy your first home, you don’t have to necessarily apply for your home loan through your primary bank. Instead, you can shop around various banks and credit unions to find the best rates.
Some Lenders Use Different Scoring Models
While banks do not calculate your mortgage rates, they may use different scoring models to put them together. For example, some banks may use the FICO score, while others might prefer the VantageScore® model. Both of these models typically range between 300-850, but they differ slightly in their calculation. This makes it important that you do your research across financial institutions to find the perfect deals for yourself. This is similar to using a price comparison app while shopping for electronics.
You May Get Better Rates From Credit Unions
It’s common to wonder what it feels like to have a high credit score. But you don’t have to maintain an excellent score to find better interest rates and loan terms. Sometimes, reaching to a local credit union is all you need to fetch competitive rates and terms. It’s because credit unions operate as non-profit organizations and trickle down discount benefits to their members who hold products like a checking or savings account. This helps you take advantage of pocket-friendly loans.
Your Credit Score Gets Affected When You Apply For a Loan
If you want to pay off existing loans, you may consider the benefits of a debt consolidation loan. But whenever you apply for a new loan or credit card, it creates a hard inquiry on your credit and drops your score. This inquiry stays on your credit for up to two years and affects your score for around a year. If you want to impress potential landlords or employers with a high credit score in the near future, you may want to hold off on new loan applications.
You Can Dispute Misreported Transactions in Your Credit Report
Similar to how you may use an email client to raise complaints with clothing stores about the quality of their products, you can initiate disputes with credit bureaus about any transactions that are misreported on your credit report. You can do this by checking your credit report for free and pointing out anything that is factually incorrect. This simple but effective practice can help you protect the integrity of your credit in the long run.
When you get to know more about how credit scores and loans work behind the scenes, you can navigate their associated processes from a place of confidence. This can help you avoid major mistakes and let you protect your finances in the long run.
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