Your Credit Score and Credit History

For those of you reading this, are you aware of your credit score?  When was the last time you checked it?  And if you know your credit score, does it rate well?  For your age, do you think you have enough debt and credit history to establish a strong score?

I'd love to hear the responses of my readers so that I can cater my content to you.

Your Credit Score and How It Affects the Loan Process

A credit score is a numerical figure that represents a person's creditworthiness.  This numerical figure is computed via a statistical analysis and takes into account a person's past and present debts, payment history, public records (bankruptcy), and collection accounts.

In the United States, FICO Credit score takes into account the Experian, TransUnion, and Equifax.  Your FICO score is the median number between the scores of those 3 credit scores, and the range is between 300-850, with the higher number being a better score.  The median FICO score of Americans is 723, and anything under 670 is considered a below average credit score.

Since your credit score determines your creditworthiness, it affects your ability to obtain a loan.  Other factors such as income, assets, and debt obligations also factor into your ability to qualify.  Ideally, you put yourself in the best situation (lowest rates, best terms) for a loan by having a high credit score, significant assets, and little to no debt obligations as you would pose the least amount of risk of defaulting.  The lower the risk of defaulting, the cheaper the loan will be for you.

Payday Loans (aka Paycheck Advances)

A payday loan (or paycheck advance) is a short term loan that's designed to cover the borrower's expenses until the next payday.  Sometimes, this type of loan is also referred to as cash advances.  (Cash advances can also be taken against an existing line of credit like a credit card.)

Payday loans don't fall under as strict legislation like conventional secured loans (homes, cars) and unsecured loans.  It is common to have a payday loan have an APR of over 50%.  Therefore, it is imperative that the individual who takes out the payday loan pays it back as soon as possible to avoid extreme interest charges.

Paycheck garnishments are never fun.

If necessary, only use payday loans as a short term solution to a cash shortage problem.  People who run payday loan shops know that the business is very profitable.  Since you use your paycheck in the application process, a default on the payday loan can easily be taken to court, and a judgment will result in a garnishment of your wages.  A $200 loan could eventually turn into a couple thousand dollars if the process is dragged out long enough.  Also, your credit score will dip due to the default.