If you happen to be a person who generally takes up bank loans, then you’d perhaps be aware of the significance your credit score holds. Simply put, credit score is a numerical expression of a person’s creditworthiness. Credit scores allow lenders to access the borrower’s financial soundness.
What is categorized as ‘good credit score’?
Generally, a credit score in excess of 700 is considered ‘good’. If your credit score is over 850, you will fall under the “excellent” category. A credit score of below 600 is considered “poor”. If availing credit facilities at cheaper interest rates happens to be your goal, then maintaining a credit rating of over 750 is advisable.
What affects the credit score?
Basically, credit scores are used to ascertain and bridge the risk associated with your ability to repay the loan. First and foremost, you need to ensure that the loan is being repaid on time if you wish to maintain a healthy credit rating.
However, there are many other factors that determine your credit score:
- Payment History (35%) – Number of times late payments are made by you
- 30% Amounts Owed – The amount you owe
- 15% Length of Credit History – How old are your accounts?
- 10% Credit Mix that is being used – The mix of retail and credit cards you use
- 10% New Credit – Having multiple accounts generally symbolises a greater degree of risk involved
What importance does it hold?
You won’t realize the importance of a credit score if you don’t happen to be a regular borrower. Since credit score is the only way a lender can assess the borrower’s financial health, having a low credit score can end up ruining future loan applications.
Also, the rate of interest you’ll be paying after getting a loan may be dependent on your credit rating. You’ll may have to pay a higher interest rate than usual if your credit rating is low.
If you wish to apply for a home loan, your credit score would be the first and the last thing the borrower would look at. Therefore, it goes without saying that maintaining a good credit score happens to be of utmost importance from a borrower’s perspective. There’s every possibility that even while availing same day loans, some lenders do check your credit ratings. It is done in order to ensure that you are a solvent borrower who is capable of repaying the debt.
Here are a few other advantages of having good credit score
1. While seeking employment
Many sneaky employers have started checking the credit ratings of their employees. Financial institutions such as insurance companies check an employee’s credit rating before hiring him/her. The idea behind the exercise is: If you can’t maintain your own financial soundness, then there’s no point hiring you to manage someone else’s finances.
So, it won’t be wrong to say that having a murky credit score can really hurt your chances of getting hired.
2. For rental qualification
A poor credit rating is bound to make you suffer if you are planning to mortgage your assets. You might also not get access to rental properties if your credit rating showcases that you find it hard to repay the debt.
3. To apply for lower insurance rates
It goes without saying that a low credit score would mean that you will be charged a higher rate of interest on insurance.
Improving your credit score
Those wanting to avail regular credits need to keep a close on maintaining their credit score. The simplest and perhaps the best way to keep your credit score intact is to pay all your debts on time. Avoiding late fees would mean that you are able to manage your finances efficiently.
How to get your credit checked?
There are quite a few apps that can help you check your credit score for free. You can now keep track of your credit score on the go with a wide range of smartphone apps.
So, to top it all, maintaining your credit score is the most important thing that needs to be taken into consideration if you are a frequent borrower. Having a good credit rating would not only give you access to lower interest rates and ready cash, it will help strengthen your goodwill as a credible borrower.