Credit score: 10 ways to improve your credit score
1. Introduction -
To live a better life, you need to have a good credit score. It is a three-digit number but has a great impact on your financial life and makes it easy for you to achieve your dreams of buying a house or car, renting an apartment, etc.
A credit score is a numerical expression that represents the creditworthiness of an individual. It is a three-digit number written on your score report that decides whether you are eligible for getting a loan or not. All kinds of financial institutions like banks, NBFCs have complex credit models that utilize the information enclosed in the application like salary, credit commitments, and past loan performances to decide the credit score of a person. The credit score assures the lender that whether the borrower is capable of repaying the loan or not if given.
The credit information companies that assign credit scores include CIBIL, Equifax, HighMark, etc. if you face an unexpected financial crisis then at that time your good credit score will be very helpful because when the lenders will conduct a credit score check and found you trustworthy then you’re more likely to get offers like 0% financing.
It is very important to have a good credit score because it can help you in getting a reduced rate of interest for loans. Make sure your credit score is on the higher side because then you will likely be accepted for a loan request. Moreover, it’s not that difficult to maintain a good credit score once you understand the whole criteria.
The credit score model was developed by the Fair Isaac Corporation, also called FICO and these are highly used by financial institutions to calculate the credit score of a person. There are various other credit score systems in the market but the FICO model is mostly used.
2. What is a good credit score?
A credit score highly affects your financial life as it has a major role in the decision made by lenders to offer the credit. It is a numerical expression that stays between 300–850. The higher the score, the better a buyer looks to potential lenders. A good credit score also opens your access to various kinds of rewards like credit card offers on cashback, travel perks, luxury benefits, etc.
If the credit score of an individual is 700 or above then it is considered a good credit score and these people usually get a lower rate of interest on loans and longer repayment tenure as well. If your score is more than 800 then it comes in the excellent category. The Credit score divisions done by FICO are as follows:
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
However, it needs to be mentioned that the range of scores can be diverse from institution to institution and every lender has different cut-off points to reject a loan application.
Most of the consumers have credit score between 600–750. FICO says that a good score lies in between 670–739, while scores between 630 and 689 are considered fair and Scores below 630 comes in the range of low credit score which is bad.
A good credit score can get you so many benefits apart from getting a loan at a low interest rate and these are as follows:
· An unsecured credit card at a low-interest rate, a balance transfer card
· An attractive car loan or lease
· A mortgage
· A method to pay money when you don’t have any emergency fund.
Apart from this, there are many times when people who have a good credit score pay less for their car insurance and there are times when house owners also use the credit score of tenants before renting the house. So, it is very significant to have a good credit score as it helps you in achieving your financial as well as personal goal in an easy manner.
3. How does a bad credit score affect you?
If your credit score ranges from 300–579 as per FICO it comes under a bad credit score. In this situation, an individual misses out on various deals and many times pay much higher interest on credit cards, loans, and mortgages. If the credit score of a person is less than 640 then they are called subprime borrowers and the financial institutions often charge a higher rate of interest on subprime mortgages so as to compensate for carrying more risk. In these cases, usually, the repayment term is reduced as well. If your credit score is less than 600 then it means that you require credit score improvement.
Your bad credit score will not just affect your personal finances but will also impact many aspects of your personal and public life. The possible consequences of bad credit are mentioned below:
· Difficulty in the Loan approval-
The credit score directly affects the chances of securing approval for a new loan or a credit application. If your score is high then there are no worries but with a low credit score, the chances of getting a loan reduces. The lender checks the credit score and if it’s less than 698 then there are high chances that your loan application can be rejected.
· High-interest rates with strict terms on approved loans-
Every lender makes sure that they charge a high rate of interest on people who have low credit scores. They do it as compensation for the risk they are taking by loan to a low credit score individual. Along with high interest rates, strict terms and conditions are also applied to borrowers.
· Trouble renting a house-
Now-r-days, due to bad experiences by the landlords; they are also checking the credit score of people before giving the house for rent unless the local law forbids them to do so. It is necessary because people who have bad credit score generally defaults in paying the rent on time.
