A credit score is a number that determines someone’s creditworthiness. The higher the score, the better the borrower looks interested in lending money. A credit score is built based on credit history that accounts for the number of open accounts, total amount of debt, repayment history.
Credit cards and loans play an
essential role in people’s lives today. The credit score is a crucial factor to
notice and measure while getting access to credit. It is a three-digit numeric
summary of a consumer’s credit history and a reflection of the person’s credit
profile. The credit score depends on past credit behaviour, such as borrowing
and repayment habits.
A credit score is essential when someone has to borrow a more significant amount because the chances to repay depending on the credit score.
People with lower credit scores are generally considered as risky borrowers, and so they are charged higher interest rates on their loans than any conventional borrower because people with lower credit scores bring the risk for the lenders. Higher scores represent better credit decisions and give any bank or lender more confidence about the repayment of the loan. That’s why they are charged regular interest on their loans. A good credit score opens access to bigger and quick loans.
How to Improve Credit Score?
Credit score, also known as CIBIL
score is a three-digit number which needs to be maintained to get access to
loans of more significant amounts like house loans, car loans or any other
loan. Some easy financial habits can quickly improve the credit score.
- Regular review of credit report for accuracy:
It’s essential to make sure that all details recorded on the credit report
are correct. Any mistake that reflects on the credit report can negatively
affect the credit score.
- Pay dues on time: Consistent, timely payments
can raise the credit score. One missed, or late payment can hurt credit
score.
- Fix credit utilization ratio: If the credit
card balance exceeds 30% of the credit limit every month, it will affect
the credit score negatively as it puts a negative impression on the credit
report. So, it’s essential to keep a cap on the credit expenses every
month.
- Maintain a credit budget: Credit should be
used wisely. It’s essential to take any loan or credit of an amount that
can be repaid in future. Everyone knows their capabilities and how much
their income can go, so in this case, even the credit card should be used
with some thoughts.
- Build up a healthy credit age: A right credit
age on average should be more than three years. It is essential to
have a proper credit age with an excellent, timely repayment history to
improve credit score.
- Avoid multiple credit card applications: every time a new credit card application goes from any user, the credit report and credit score is checked. Multiple credit card applications in a short period can make one less creditworthy, and negatively impact the credit score.
Benefits of a good credit
score
It’s not that one cannot survive
without good credit, but it’s essential to have good credit if one wants to
have a future with easy access to credit. Other than this, few other benefits
can come with a good credit score.
- Low-interest rates on credit cards and loans
or mortgages
- Quicker and better chance of loan or credit
card approval
- More negotiating power
- Comfortable support for higher credit
limits
- Easy support for home loans
- Better car insurance rates
- Avoid security deposits on utilities
Home loans which need a massive
amount become more comfortable and quicker if the credit score is good, i.e.,
750 or above. The primary key to keep a good credit score with the help of a
credit card is to keep them active and pay bills on time, with the low
outstanding balance.