Whenever you are applying for a loan or any type of credit application, one figure always turns up: your credit score. This is probably the most important aspect of your credit status, as it determines your creditworthiness (if you are a credit applicant), and will make or break that loan approval. Aside from these, your credit score will also affect how much your loan will cost you during the repayment. The higher your credit score, the more manageable your credit risk. Your interest rates also decrease with higher scores, and will increase your chances for loan approval.

FICO scores range between 350 and 850, with the latter being the best possible rating; a perfect score affords you the lowest interest in your loans. Scores which fall below 600 reduces your chances for loan approval; otherwise you may be given increased interest rates, compared to those usually advertised. If you are applying for debt relief as a result of a bankruptcy, filing it with a score below 560 won’t hurt your overall credit rating, compared to filing it with a score higher than 700. For higher scores debt restructuring, not debt relief, is the best way to repair your financial rating.

Your credit score will be a useful tool for the lender in determining two things: your credit reliability and your repayment interest rate. These apply to any form of financial transactions you apply for, as long as it involves a lender and a loan. It is true that there are car dealerships which offer zero percent rates on car loans. However, this only applies for people with a perfect credit score. Those who have average to low scores may need to answer for interest rates of seven or eight percent, and applicants with bad credit take the full brunt of the penalty, being required to pay for interest rates of up to ten percent. Keep in mind that your credit score is only one of the many factors which can influence your loan’s interest rate. The kind of property in which you intend to invest your loan money, and how much of it is going to the investment, are deciding factors for approval, among other things.

Although banks and lenders are the first to pull out your credit report as soon as the situation calls for it, other institutions are also getting into the credit score bandwagon, including landlords, employers, businessmen, and insurance companies. While you may think that there is little connection between your credit and driving histories, for insurance companies, using your credit score to determine your capability of paying for premiums is made to their advantage, as it helps them cut back on their losses. Although they use a formula which is different from those used by bankers and lenders, referring to it as an insurance score, the use of credit scores to determine your eligibility for an insurance policy is under close scrutiny, to the point that many states outlaw the practice. Whether your credit score is used to your advantage or otherwise, you have to closely monitor it, maintaining a good score or improving on a bad rating by dealing with missed and late payments and outstanding loans, while keeping loan requests at a minimum. Your financial health is measured by your credit score, and letting it take an uncomfortable dip can cause your loan applications to be declined.