Want to improve your credit score for financial requirements? Having the best credit score helps you qualify for the best financial products and offers. In addition to using credit scores for insurance and applicant verifications, businesses also use them to decide whether to offer you a mortgage, credit card, vehicle loan, and other financial services. They also determine your credit limit and interest rate.
In this article, we’ll cover the basics you need to know about: what a credit score is, how to check credit score online, and practical ways to improve it.
What Are Credit Scores And Credit Score Range?
A credit score is a simple-to-read three-digit number that rates an individual’s creditworthiness and the ability to obtain loans, credit cards, and a mortgage. A credit score is based on the creditor’s payment history, which includes their repayment history, active debts, and total debt levels.
What affects the credit scores?
- The most common factor that affects your credit score is demonstrating how you pay your bills on time.
- The amount of debt also impacts the credit scores and eligibility for future loans.
- Omissions in the credit report can also lower the scores.
India has 4 credit bureaus, sanctioned by the Reserve Bank of India: TransUnion CIBIL, Experian, Equifax, and CRIF Highmark. However, in the US, there are two primary types of credit rating agencies, which are Fair Issac Corporation (FICO) and Vantage Score. Each of these credit agencies has its own procedures for calculating the credit scores.
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The Standard Credit Score Range With Their Classification
- Poor:- 300-579
- Fair:- 580-669
- Good:- 670-739
- Verygood:- 740-799
- Excellent:- 800-850
Difference Between Credit Score And CIBIL Score
There are certain differences between a credit score and a CIBIL score:-
How Are Credit Scores Calculated?
A credit score is a process to measure the risk of a borrower. Three major reporting bureaus help to calculate the credit scores. These are: Experian, Equifax, and TransUnion make the reports on the lender’s credit history.
- Payment history: It majorly depends on the overall repayment history, which contributes 35% of the score, and how successfully you have managed to repay the debt.
- Amount owed: The current balance and utilization, which contributes to 30%, refers to the credit available and how much you have used.
- Length of credit history: It refers to the repayment duration and timely payment, which contributes up to 15% of the score.
- New credit: When people regularly apply for credit, it probably indicates imperfect credit scores, which range up to 15%.
- Credit mix: It generally shows how the lenders manage different types of credit. If you have a home loan, a credit card, or a personal loan, which is considered a healthy mix, and it contributes up to 10%.
How Can I Check My Credit Score?
You can check your credit scores by creating an account on the websites of credit bureaus like CIBIL, Experian, Equifax, and CRIF Highmark, or by using several online credit score platforms like Paisa Bazaar, Paytm, or bajajfinance etc.
Here are simple steps to do a free credit score check:-
Step 1: Choose the credit bureau, such as CIBIL, CRED, Equifax, and CRIF Highmark.
Step 2: Visit the official website of the credit bureau.
Step 3: If you are a new user, you can register by providing your personal details such as your first and last name, your D.O.B., your PAN number, and your mobile number, or if you’re already a member, you can simply log in on the portal.
Step 4: Then an OTP will be sent to your registered mobile number, and then verify your identity.
Step 5: After all these procedures, you can finally access your credit score on the dashboard.
Consequences Of Low Credit Scores
A bad credit score is determined by factors like missed payments, high credit application ratio, and defaults in previous loans. Negative outcomes really affect the credit scores and can restrict your access to taking loans, mortgages, and credit cards.
Here are some of the key consequences of low credit scores:-
- Bad credit scores of 300-579 lead to loan rejections and limited borrowing options.
- You can face high interest rates while paying off the debts.
- Bad credit also affects the insurance premiums.
- If you have a low credit score, you can face difficulties while purchasing a house, car, or securing utility services.
- You will be unable to access new credit due to having a bad credit score.
How To Increase Credit Score? 5 Expert Tips
A good credit score can range up to 670 or above. It plays a vital role when you apply for loans, as it reflects your creditworthiness. Below are the highlighted steps to improve the credit scores over a long duration of time.
- It is essential to clear the existing debts on the assigned date, as it reflects and boosts the credit score.
- Paying the EMIs on the specific time will increase the CIBIL credit score.
- It is crucial to stay below the credit limits, utilizing the credit score in a limited way.
- Borrowing the mix of credit scores leads to improvements in the credit scores.
- Regularly reviewing your credit scores to minimize errors, as accurate information reflects a strong report.
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Conclusion: Unlock Better Financial Opportunities With Good Credit Scores.
Taking control of the credit scores is a strategic step for stepping towards financial stability and success. To have a good credit score, you have to pay the debts on time, pay the EMIs on the specific dates, limit the use of multiple credits, etc. By following the tips on how to improve your credit score, you can steadily increase your credit score. Together, these actions will unlock the credit affordability, reducing insurance premiums and setting your path for financial security.
FAQs: Good Credit Scores- A Path To Your Financial Stability
This occurs because paying off debt has an impact on a number of factors that affect your credit score. These include your credit utilisation ratio, credit history, and credit mix.
Negative information about your credit account payment history can typically be reported by credit reporting agencies for a maximum of seven years, while positive information may be reported for a longer period.
These are regarded as soft enquiries and have no negative impact on your score or creditworthiness. There is nothing wrong with regularly checking your own credit score.
A credit utilisation ratio of less than 30% is usually suggested. Experts suggest that lower is better, though, and those who keep their ratio in the single or double digits, usually below 10%, generally have the best credit scores.
Getting a credit card with no credit history may sound new, but it’s possible. Building a credit history is important as it plays an essential role in availing credit cards.
It is possible to obtain a student loan even without a credit history. However, it is crucial to repay on time to maintain a good credit score to smoothly get a loan in the future with a higher credit limit.
If you have multiple credit cards, it’s likely to create a negative impact on your credit score. You should never apply for too many credit cards at a single time.
