- What is a good credit score?
- What are the benefits of having a good credit score?
- 1) Low-interest rates on credit cards and loans.
- 2) Better chance for credit card and loan approval.
- 3) More negotiating power.
- 4) Get approved for higher limits.
- 5) Easier approval for rental houses and apartments.
- 6) Better car insurance rates.
- How is the credit score calculated?
The range of credit score is 300-900. The more you are closer to 900, there are more chances of loan application getting approved, hence more confidence the credit institution will have in your ability to repay the loan. Anything above 750 is considered a good credit score. All banks /NBFCs usually look at the credit score as one of the many checks they do before advancing a loan.
What is a good credit score?
A good credit score ranges from 750-900. Banks and other NBFC’s consider you to be credit healthy if you have a score of 750 and above.. Banks feel it is as a risk to provide you a loan or credit card when your credit score is less than 750. Banks and other NBFC’s are comfortable with approving loans to customers who have a score of at least 750 and above.
There are mainly 4 credit bureaus in India which are authorized by RBI. You can choose any of the four bureaus to get your credit score online from the websites of any of the bureaus. There are also a few reputed credit management companies which provide the help you understand your credit health and provide online analysis.
What are the benefits of having a good credit score?
If you have a good credit score, banks provide you with a lot of benefits, such as low-interest rate, higher loan amount, quicker loan approval process and higher repayment period. Credit score of 750 and above is required to enjoy all these benefits. With a good credit score, you can enjoy all the benefits which are –
1) Low-interest rates on credit cards and loans.
Interest Rate is one of the costs you pay for borrowing money, and the interest rate you earn from a loan is directly tied to your credit score. You’ll almost always qualify for the best interest rates and you’ll pay lower finance charges on credit card balances and loans if you have a good credit score. The less amount of money you pay on interest, the more you have for everything else including repaying your balance.
2) Better chance for credit card and loan approval.
Having a shaky credit history will make you avoid making new credit card or loan application. Lenders also consider other factors like your income and debt other than your credit score, so it means that good credit score doesn’t guarantee approval. But when you decide to apply for a credit card or loan, you can do it with confidence.
3) More negotiating power.
It gives you a leverage to negotiate for a lower interest rate on your credit card or a new loan when you have a good credit score. You can refer to great offers you’ve received from other companies based on your credit score if you need more bargaining power. However, creditors won’t bend on the terms of loans and you may not be free to shop around if you have a low credit score.
4) Get approved for higher limits.
Your capacity for borrowing is based on your income and your credit score. Banks are willing to let you borrow more money because you’ve demonstrated that you pay back what you borrow on time when you have a good record. Companies can still approve for some loans with a bad credit score, but only to a limited amount.
5) Easier approval for rental houses and apartments.
To screen tenants more landlords are using credit scores. Your chances of getting into an apartment can be severely damaged by a bad credit score, especially if it’s caused by a previous eviction or outstanding rental balance. A good credit score will save you the time and hassle of finding a landlord or lender who will overlook damaged credit.
6) Better car insurance rates.
The bad Credit score can also be used against you by auto insurers in the list of companies. Insurance companies say that generally, people who have bad credit score tend to file for more claims and these people are charged with a higher insurance premium. People with a good credit score will pay less for insurance than similar applicants with lower credit scores.
How is the credit score calculated?
The credit score is calculated on various factors, especially on your payment history. The credit score is computed by repayment track record which contributes over 35% of weight. In addition, your credit score is also calculated based on:
- Your total available credit balance.
- The balance between your secured and unsecured loans.
- The number of loans and credit cards you have.
- Credit utilization.
- Plus a whole host of other factors.
The credit bureaus use credit scoring algorithms to calculate your credit score. Lenders assess your loan eligibility, it also helps them understand if you are worthy of credit by using your credit scores. The higher your credit score, the higher are your chances to get your loan approved. So it’s always advisable to check your credit score before you apply for a Personal loan.
Related Topic: Factors that Affect Your Credit