Just like a good diet and fitness can give you great health, good credit score has beneficial effects as well. Some of them are quick loan approvals, lower rates of interest and other favorable terms on credit. And a bad credit score does just the opposite. Rejected loans, higher interest rate, etc may be some of the detrimental effects of a bad credit score.
But how can a common man determine if their credit score is low or high? Is checking your credit score the only way to find out if you have a low score or are there more ways of determining if your credit score is low or high.
We tell you more about some signs that you should watch out to determine if you have a low credit score.
Checking Credit Score
Checking your credit score is one of the easiest ways of determining if you have a low credit score. Unlike earlier times, when you had to pay the credit bureaus to check your credit score, now your credit history or at least the basic components of your history are easily available at your fingertips.
You can use our app or check your score on our website for free any number of times. This is not counted as hard enquiry, so you need not even worry about your credit score going down. It is important to check your credit scores at frequent intervals so that you know where you stand. In case it is required, you can act on improving your credit score before applying for any credit.
Any score less than 700-750 would be construed as a low credit score.
We would advise you to check your credit scores at least once in an interval of 1-3 months.
While checking your credit score is one of the methods of knowing your credit score and determining if it is good or bad, they are other signs that you should watch out for that can act as indicators of a low credit score.
Additional Reading: Side Effects of a Bad Credit Score
Repeated Rejections On Loan /Credit Card Applications
Getting approval on a loan or credit card application is important, because you apply for credit only when you have some need. However, have you been noticing a trend of getting rejected on your credit card or loan applications repeatedly? And has this kept you wondering why?
According to experts, bad credit score is the number one reason for any loan / credit card application getting rejected.
If you have not been checking your credit scores before applying for loans or credit cards and are later ending up with a rejected status even after satisfying the other criteria like minimum income, proper documentation, etc., then it may be your credit score at play.
Before applying for any more loans, we suggest that you check your credit score and only after knowing that it is satisfactory should you apply for loans or credit cards.
Higher Interest Rates Being Charged On Loans
Interest charged on your loan account is an indirect indicator of your creditworthiness. Many banks and financial institutions have already started rewarding their credit healthy applicants with better rates than the others.
In this scenario, if you have a trend of getting loan approvals but at a higher than normal rate of interest, there is surely something a discrepancy here.
It may be again due to your credit score. When your score is low, the bank may approve your loan but at a higher than usual rate of interest just to compensate for the higher risk involved in lending to a not so credit healthy individual.
Credit Card Applications Being Approved With Low Credit Limit
Credit cards are unsecured credit as there is no collateral linked to them. Therefore, the issuing company expects a high degree of creditworthiness to ensure that the credit card outstanding is repaid promptly.
In the similar fashion, the credit limit set on your credit card is also a factor of your income, other obligations and credit score. A bank/ credit card issuer would not like to risk a high credit limit on an individual who does not exhibit signs of being responsible with credit. Hence, if your credit limit on a credit card has been set quite low or a credit limit on an existing card has been cut down, it might be due to your low credit score.
When faced with such situations, it is good to wait for a few months, act on improving your credit score and then requesting your issuer for an increase in credit limit.
Business Loans Getting Rejected
Have you had instances of your business loan getting rejected even when you have sound financials and meet other criteria pertaining to your business?
The general understanding on business and personal capacity of the founders is that they are separate and independent of each other because the business is a separate legal entity. While that is true to a certain extent, there are some forms of business where the separation is difficult like a Sole Proprietorship concern or even Partnership Firms.
When it comes to small and fledgling businesses, the founder or the owner is the whole and sole of the business and the credit score of the key personnel does matter when the business loan is considered for approval.
There may be other signs that indicate that your credit score may be on the lower end even though you might have not seen effects of the same.
Getting calls from recovery agents
When you have not paid EMIs on the loans availed by you even after your lenders allowing you sufficient grace period, the lenders employ the services of recovery agents. Dealing with these agents is not a pleasant experience.
If you have reached such a stage, then in all likelihood your credit score would have taken a big hit as delinquencies are reported at 30, 60, 90 and 120 days past the due date.
Credit Cards Getting Maxed Out
If you are using your credit card to the max month after month, your credit score may have taken a nose dive. Limits are set on credit card to set a maximum spending amount. It doesn't mean that you spend the entire amount each month.
Spending the entire credit limit will portray you as a credit hungry person. Want to learn more on the side effects of a bad credit score. Check here.
Having a good credit score helps you in many ways. Always be credit healthy for you never know when the need for credit arises.