The question of what credit score should you have is a question that has been coming time and again, so let’s look at it. An individual’s score plays a vital role in determining his/her creditworthiness. A lender like a bank or a non-banking finance company evaluates the credit score of a potential borrower. This is to determine whether or not to lend to a borrower.
Your score also impacts the amount of loan sanctioned and also the interest rate payable on the loan by the borrower. Additionally, when a borrower has a low credit score, the lender may reject the loan application.
What is a Credit Score?
A credit score is a three-digit number that represents the creditworthiness of an individual. A credit score typically ranges between 300 and 900, 900 being the highest score possible. Banks and various regulated lending institutions will normally check your credit score when you apply for a loan. A credit score is prepared by TransUnion CIBIL. It is one of the four credit bureaus functioning in India (other bureaus include Experian, CRIF High Mark, and Equifax).
What is a Good Credit Score?
Lenders like credit card issuers and mortgage providers may set their own standards on what a “good credit” score means. Also, they decide whether to grant you credit and at what interest rate. In practice, a good credit score is one that helps you get what you need or want, be it for accessing a new credit or for lower mortgage rates.
What Can a Good Credit Score Get You?
With a good credit score, you can borrow money as well as how much you’ll have to pay in interest to do so.
Here are the things you stand to gain with a good credit score:
- A car loan or lease
- A mortgage
- Offers you a medium of paying for expenses in a crisis in a situation where you have an emergency and funds run out.
- An unsecured credit card with a decent interest rate, or even a balance transfer card.
How To Improve Your Score
If you have an average credit score or worse, relax, you can still take steps to improve your score over time. Doing the following can help you improve your score:
- Ensure you pay your bills on time every single month. Making late or missed payments are the single biggest factor that affects your credit score.
- Try as much as you can to lower your credit utilization. Credit utilization is measured by how much of your credit limit you use.
- Check your credit report from each of the three credit bureaus once a year for free through annualcreditreport.com. This will happen in April 2021. You can check your credit score for free weekly. When you review your credit report, it helps you spot any errors that may be having a negative impact on your score so you can take steps in correcting them.
- Think of getting a secured credit card. This will help you, if you have poor or bad credit, you can start building a credit history with a secured card and it’s can be a good way to begin. You can choose a secured card that reports to all three credit bureaus. This gives you the best chance of having your good payment behavior and improves your credit standing.
Credit scores are not calculated with credit reports, and they are not stored as part of your credit history. Rather, your credit score is calculated only when your credit score is requested. Your score can change over time, depending on your credit history including late payments, amount of available debt, and more.