The credit score is one of the first terms that come to people’s mind when they start learning the basics of personal financing. It is an important term which everyone should know about as this, it is a 3-digit score which holds the power to influence lenders to take decisions in your favor when you apply for a loan.
It is important to have a fair understanding of credit score, one should know about the various definitions and implications that we come across while looking for a credit score.
Credit Score Basics
A credit score is a numerical term expressed in three digits which are given to every individual whose credit information is kept with credit bureaus, also known as credit information companies (CIC), such as Experian and CIBIL. The credit score is calculated on the basis of an individual’s credit information by credit bureaus, which is submitted regularly by banks, credit card companies, and other money-lending institutions.
Your credit score is not just a reflection of your financial prosperity but also a key to get loans and other facilities quickly. They may even consider offering you a home loan, personal loan or any other loan at favorable interest rates if a lender is impressed by your credit score. Therefore, it’s important to build and maintain a good score. And to do so, understanding the credit score range is important.
Credit Score Range, Rating, and Impact
The credit score is usually categorized as follows:
800 and Above
Impact: An excellent credit score shows that the borrower has no negative mark on their credit report which means he had persistently paid his loan installments and credit card bills on time. It becomes almost impossible for Lenders to say no to borrowers with excellent credit scores. This range of credit score shows that you can get various loan benefits such as quick loan approval, low-interest rate and favorable deals on all kinds of loans.
Key Tip: It takes a lot of honesty and faith to reach this excellent credit score range and higher efforts to maintain this range. To enjoy the benefits of an excellent credit score range, keep paying your loan installments and credit card bills on time.
720 – 799
Impact: The people who fall under this category are termed as “Good” credit scorer. This range people have good chances of getting approval on loan application on a quick basis as it indicates the borrower is dependable and can be trusted and given loan but still some risk is still there. Therefore, depending on the lender, you may or may not get as many loan benefits as you might have expected.
Key Tip: To increase your chances of getting loan approval and loan benefits, borrowers should constantly work towards improving their credit score. Be careful when handling debts because a single mistake can take you down.
500 – 699
Impact: When it comes to handling of loans and credit card bills, fair credit score reveals that borrowers have performed neither too good nor too bad. They are more at a prone of getting their loan application rejected. Even if lenders grant them a loan, they will not get it at favorable terms and conditions like the rate of. The loan will most likely be given at a high rate of interest, high down payment and fewer or no benefits.
Key Tip: From this point, you’re either moving up or down the credit score meter. Therefore, it is important to read carefully when treating your debts. To move your credit score up, decrease the debt amount, pay your bills on time and pay your loan installments.
Less than 500
Impact: There is a very rare chance for people in this category to get approval on their loan application. It is a high-risk category for lenders. Banks and other financial institutions are always wary of people with the poor credit score as they do not trust them to pay the loan amount on time. It shows that the borrower is financially unstable, has excessive debt or has missed repayments in the past. Even if a lender agrees to give you a loan, they will ask for a guarantor to reduce the risk. This is because, if under any circumstance you’re unable to repay the loan to the lender, the guarantor will cover the cost of your loan amount.
Key Tip: For people with bad credit score, there is the only way to go and that is ‘UP’. Borrowers should start making timely payments, decreasing debt amount, stop applying for loans and avoid using credit cards until the previous loan amount clears to go ‘UP’ on the credit score meter. Do this consistently and with time, your credit score will go up.
Quick Ways to Improve Your Credit Score
You always have a chance of improving if your credit score lies anywhere below the excellent credit score. By making a few changes in your credit handling ways, it may take some time but you can reach the excellent credit score range in no time. However, you will have to be consistent in your efforts so that you can once again gain the trust of lenders. To improve your credit score, the following are a few quick tips:
- Always pay your credit card bills and loan installments on time.
- Avoid frequent use of a credit card
- Refrain from using more than 30 to 40 percent of your credit limit.
- Don’t apply for too many credit cards.
- Don’t apply for loans frequently.
- Check your credit report periodically to track your credit performance and check for mistakes if any.