What is a bad credit score?
A bad credit score is generally one that is less than 650. A credit score is a three digit number in the range of 300-900 that is issued by a credit rating agency. It gives lenders a snapshot idea of your credit-worthiness. A score below 750 often disqualifies you from being granted a loan as it implies that you have bad credit – that is, you do not demonstrate financially responsible behaviour. On the other hand, a good credit score (above 750) signifies that you have a good history of fulfilling your financial obligations. A good score makes you an attractive customer to potential lenders.
Your credit score is calculated after taking into account every detail of your credit history. Every loan-related transaction is recorded by the financial system and sent to the credit rating agencies. (In India, the three credit rating agencies in operation are CIBIL™, Equifax, Experian and CRIF High Mark). Your credit score reflects your individual payment history with regard to all your loans, both past and present, and across all lending institutions. A low score implies that you have a bad credit record, most often as a result of a poor repayment history
Reasons for a low credit score
These are some of the common reasons for a low credit score:
1. Delayed repayments: Many people do not realize that even one or two delayed credit card payments can affect your credit score and cause it to drop. The more the number of delayed payments, the greater the negative impact on your credit history and credit score.
2. Missed payments: Sometimes due to an unforeseen emergency, you may not be in a position to make your payments. For example, you might have unexpected medical expenses for a hospital stay, or you might lose your job, making it difficult for you to fulfill all your loan obligations. If you miss any payments, it will be recorded in your credit history and lead to a drop in your score.
3. Lack of credit history: If you have not borrowed for a loan or had a credit card account, you will not have much of a credit history. This too can lead to a low credit score.
4.Administrative error: Occasionally, there may be an administrative error that results in wrong information being recorded on your credit report. Sometimes, this might be the result of fraudulent activity as well. For no fault of yours, these errors could lead to a lower credit score, signaling to future lenders that you have bad credit.
In general, it is advisable to have a credit score of 750 or above in order to be in good credit standing with banks and other lenders. Anything under 750 is viewed negatively by lenders who are reluctant to approve your loan. It is important to improve your score to at least 750 so that your loan application is not automatically rejected during the initial application process
If you have a low score and are afraid that your loan application might be rejected, CreditMantri can help you improve your credit score so that you become loan-eligible within a period of 6-8 months.