There are times in all of our lives that we will need to borrow money, whether that is in the form of a personal loan, a credit card or perhaps a payday loan, but whatever way we borrow, there is one thing that will affect this. Your credit rating. This simple number can play a massive part in a variety of factors when borrowing such as your eligibility, how much you can borrow and, most interesting, how much it will cost to borrow money. The cost, also known as interest is sure to change depending on how good or bad your credit rating is. In this article, we are going to look into how your credit rating will affect any loans you decide to take out.
How Your Credit Rating Affects The Cost Of Borrowing
If your credit rating is good, the interest that you will pay on any loans or credit cards will greatly decrease compared to if you have a very bad credit score, which would inevitably cause the interest on a loan to skyrocket. There are reasons behind this, and we are going to go into a little more detail on why this is. However, one of the most advisable things is to attempt improving your credit rating before applying for loans or credit cards and this will ensure that you get the best possible price on the interest.
When you see an advertisement for a credit card, you will likely see that the APR is said to be between two figures, and which figure you are given will depend on your circumstances and your credit rating. You will usually find that the interest rate you are offered will fall somewhere in between these two figures. If you are thinking of taking out a loan of some form, the same sort of rules will apply to mean that the better your credit rating, the better the interest rate you will get. Loans are usually advertised with an average interest rate displayed and the APR that you are offered will vary depending on how much of a risk you are. Lenders are often known to review their customers at certain points during borrowing, and if your credit score has changed, they may either increase the rate of interest or lower it depending on the changes that occurred. That being said, if your credit card company increases your interest rate, you are legally within your rights to ask for the account to be closed and a repayment plan set up. This will reflect on your credit score but is an easier way to manage your repayments. The main reason that payday lenders ask for more interest from those with a bad credit rating is that it is riskier to lend to people who fall within this category.
By maintaining a good credit rating, you are much more likely to be offered a good APR on any loans or credit cards that you take out. It is also important to keep your credit rating healthy so that if any reviews take place, your interest rates won’t be negatively affected. If you have a bad credit score, this will affect how much it costs to borrow but by improving your score, you can change these higher rates of interest.