We frequently hear that keeping a high credit score is essential for us. Maintaining a close check on your credit score is a constant endeavour because it has a big impact on your capacity to use numerous financial services and availing perks that comes along with it-better interest rates on loans. Your banking activities will be significantly impacted by where your score stands. Think of your credit score as a chance to leave a great first impression on the banks you interact with. That’s one benefit of check credit score more often than you do. However, there is still a section of people who doesn’t have much awareness about CIBIL or credit score. Let’s take a deeper look at what a credit score actually signifies and why it’s significant to check credit score.
Basics of Your Credit Score
Your credit score is a three-digit number that represents your creditworthiness. It ranges between 300 and 900. The higher levels represent better creditworthiness, while the lower levels represent low creditworthiness. The ideal credit score, according to CIBIL, or the Credit Information Bureau India Limited, is any number higher than 750. In reality, 79 per cent of loans are approved to consumers with CIBIL scores above 750. Banks always look at this score to determine whether or not you can afford to pay back the loan despite having other obligations. In order to be able to access loans and other benefits when you need them, you must keep your score over 750.
What is the different credit score ranges you should know?
Various factors can affect your credit score, which can cause your score to be put in any of the following brackets:
750 and Up – Excellent: You fall under the category with the highest ceiling if your credit score is 750 or higher. There are numerous advantages to this bracket. The main benefit is that you become qualified for loans with faster approval times, simpler loan applications, and lower interest rates.
700 – 749 – Good: With a credit score between 700 and 749, you can still get excellent lending rates and a speedy approval process. But always aim for the top bracket because it simplifies the procedure.
650 – 699 – Fair: It is regarded to be an ordinary or fair score. Loans for those with credit scores in this range can still be advantageous, but the chances of rejection are also more here.
600-649-Poor or Highly Doubtful: You are on the verge of entering perilous waters when your credit score is between 600 and 649. Any loans that are granted at this point will be sanctioned with a high-interest rate, further increasing your debt load. Hence, check with a credit bureau to see whether your credit score calculation is right. And if it is, make efforts to improve your CIBIL score by paying all the debt or going for debt consolidation.
Below 600: If your credit score is under 600, you must act right away. At this point, your chances of getting a loan accepted are quite slim, and even if you do, the interest rate will be extremely expensive for you. You will need to take immediate action at this point to raise your score because a low value won’t help much.
What affects my credit score?
The following variables will have an impact on your credit score:
There is an imbalance in your debt-to-income ratio: One of the most crucial elements that affect your credit score is your debt-to-income ratio. Your debt, including any mortgages, loans, credit card bills, and so forth, should not be more than 50% of your income. This guarantees to banks that you aren’t spending all your income paying for past debts.
Going above your credit utilisation rate: This is the second most important variable that could impact your CIBIL score calculation. Your credit usage ratio is the percentage of your total credit limit that has been used. If one wants to keep a higher score and hence benefit from additional advantages associated with the increased score when availing loans, they should ideally not use more than 30 to 40% of the credit that is available to them.
Age of your credit: This could be an important factor in determining your score. If you’ve managed your credit well in the past, banks will take this into consideration when deciding whether or not to sanction a loan for you. The importance of longer credit that has been handled carefully with on-time payment of any outstanding debts also helps in assuring the bank of your commitment to repaying any loan sanctioned to you.
Payment History: Your credit score, which in turn influences your capacity to avail loans quickly and at reduced interest rates, is mostly based on your payment history. If you have consistently made on-time payments on your previous loans, this will reflect favourably in your credit score calculation. It will convey to the bank that you are far less likely to default on any new loan and, as noted above, result in reduced interest rates. On the other hand, late payments might lower your rating by many points, and the same will be reflected in your credit score calculation.
Multiple Loan Requests Can Damage Your Credibility: If you apply for many loans at once, banks will frequently view this as a red flag because it raises concerns about your ability to repay your significant debt load. When applying for various loans, you must exercise caution; avoid applying for a loan that you won’t be able to repay on time because doing so will lower your credit score.
Healthy Balance of credit: Banks frequently take into account your capacity to manage various forms of credit responsibly. If you’ve been successful in making sure that all previous payments have been made on time, it can surely have a favourable effect on the bank’s willingness to offer you a loan at a cheaper interest rate.
How Can Your Credit Score Be Raised?
There are various strategies to raise your credit score above 750.
Follow up on your credit report to fix any mistakes: Credit score reports can show an error of failing to update a loan you’ve already repaid. This can have a significant impact on your credit score; therefore, check credit score and reporting to catch such inaccuracies is essential. In that case, you can go to them for a correction in credit score calculation.
Pay Off Every Debt On Time: The best chance you have of coming across as a responsible, creditworthy person is to make on-time payments on all your loans and debts.
Choose long-term loans: Even if the desire to pay off your debt as quickly as possible may be overwhelming, always choose a long repayment time if you’re unsure. Because of this, your monthly payments will also be cheaper, which will make it simpler for you to repay without worrying about a default.
Conclusion
You must check credit score closely starting the day you avail of any form of a loan. The key to getting offers and benefits you would otherwise be missing out on depends on your credit score. Hence, know the benefits of higher credit scores and ensure there is no inaccuracy in credit score calculation.
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