How can a credit card help you boost your score if a lender declines your loan, and you're wondering why? The culprit may be a low credit score.
Credit scores allow a financial institution to check your reliability to repay debts on time. A good credit score is particularly important to get loans, credit cards, and other credit products.
If you don't know about credit scores, here's all you need to know about a credit score.
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| The importance of a good credit score |
What is a Credit Score? Know all About it Here
When it comes to financial planning, you must have heard about savings fund, investment, reserves and credit score. While the first three are what everyone would know, a credit score might be something that a lot of people may not know about.
You must have heard the term credit score in TV advertisements, movies, and TV shows. So, what exactly is a credit score? Why do people consider it important?
If you have all these questions, worry no more. We will be telling you all about a credit score here.
What is a Credit Score?
A good credit score is particularly important to get loans, credit cards, and other credit products. It is three-digit number that analyses your credit behaviour. Usually, it ranges from 300-900.
A credit score is crucial in a financial institution’s decision to offer you credit. A high credit score can give you a number of benefits. Here are all advantages of having a credit score.
Advantages of Having a Good Credit Score
Your credit score plays a vital role when you apply for a loan or credit card. So, let us see some advantages of having a good credit score.
- One of the major advantages of a good credit score is that you will get loan approvals very quickly. Having a good CIBIL score can put you as a low-risk customer. All financial institutions or banks can easily grant you a loan or credit card.
- If your credit score is excellent, you will get attractive rates on your loan. It will put you in the good books of the banks. And you can negotiate with rates and get an impressive deal.
- You can get easy access to credit cards. Any financial institutions always check your score before allocating you a credit card. If your credit history shows all repayments on time against your loan or card, then your score will be high, and without any difficulty, you will get a card.
Credit Score Ranges and What do They Indicate?
A credit score of seven hundred and higher is considered good and may help the borrower to receive a lower interest rate, which is helpful to paying less interest on the loan. A credit score greater than eight hundred is considered excellent.
Every creditor defines their range for credit score; now, let us understand the credit score ranges.
- Excellent credit: 720 or higher
- Good credit: between 690 and 719
- Fair credit: between 630 and 689
- Poor credit: 629 or below
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| Calculating Credit Score |
Factors that Affect Your Credit Scores
- Payment History: Payment history is an especially crucial factor that affects your credit score. If you have regularly paid your bills or EMIs, it shows that you are a responsible borrower and at a lower risk of default. Responsible credit behaviour will help you get low loan rates and quick approval on your application. Conversely, due payments or missed payments can affect your score.
- Credit Utilisation: The usage of credit is the biggest factor that affects your credit score. How much credit you are using from your credit limits is important, like paying on time. It is good if you are using less than 30% of your credit limits; lower is better.
- Credit Age: Your credit history is also important while computing your score. For example, if you have managed your credit well in the past and continue the same payment service on time, it will positively affect your credit score.
How to Improve Your Credit Score
Creditworthiness is improving your credit score. Below are some key points which help to improve your credit.
- Pay your EMIs or bills on time. Take advantage of all credit payments. Hence, keep making payments on time to improve your score.
- Keep your credit card balance under 30% of their limits – lower will be much better.
- Use your older card to build a strong and long credit history. Constant use of a credit card account will always increase your credit score.
- Try to maintain a healthy mix of secured and unsecured loans to be safer. Lots of unsecured loans can have a negative impact on your score.
- Take only a few loans simultaneously; several loans against your name can affect your score. It will be good to take one loan at a time. Clear one loan and then after taking another loan.
- Go for long-term loans because interest rates are lower and EMIs too. So.it will be easier for everyone to make payments on time and have fewer chances of defaulting.
So, check your credit score timely basis. If your score is less than 720 marks, boost your credit score.
Conclusion
Now, you can understand credit score is one number that can save you a lot of money in your lifetime. But it is up to the borrower to make sure that their credit stays strong and get access to more opportunities to borrow if they need.