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Most of us love to score high on our examinations because it is the proof that we can show others how well we have performed or it’s a matter of pride for some. Your scores certainly make an impact in your career as they are the representation of your knowledge, and they can help you get recognitions in various aspects. A good credit score is something which everyone would always want to have because it’s the proof to the lender that you are responsible with your credit. Individuals with a good credit score are lenders’ delight when they want to extend credit. You must be wondering what exactly a good credit score is and how the credit score is calculated. Let us look in detail about good credit score and its benefits.
About Good Credit Score
A credit score is a three-digit numerical expression that ranges between 300 to 900 which is the representation of your creditworthiness. The lenders refer to your credit score before approving your credit application. A good credit is certainly a winner in every loan or credit application. Any credit score of 750 and above is considered a good credit score.
Your credit score is generated by credit bureaus namely Equifax, CIBILTM, ExperianTM and CRIF High MarkTM. The credit score from each credit bureau may vary as they have different mechanism to calculate the credit score. However, there won’t be variations by a huge margin.
A credit score ranging between 750 to 900 is considered an excellent credit score. The banks, NBFCs and other online lenders prefer candidates with such a credit score. If you have such a credit score, you can be assured that you will be eligible for any credit product. The following will help you understand the range of credit score and their meaning.
As the table illustrates, it is very clear that having a credit score of 750 and above deemed a good credit score that can help you avail several credit opportunities.
Having a prudent approach on all your repayments can absolutely get you a good credit score which in turn will bring numerous benefits. Following are some of the major benefits that a person with a good credit health can enjoy during the lifetime:
1. Low Interest Rates on All Types of Loans
This is a major benefit when it comes to having a good credit score. Everyone aims to maintain a good credit purely for the reason that loan can be availed at low interest rates. Getting a low interest rate loan can help you pay off the loan much faster. It reduces a significant financial burden and help you enjoy a happy life. Even a slight reduction in big-ticket loan such as home loan, loan against property, etc., can save you a lot of money in the long run.
2. Higher Approval Chances for Loans and Credit Card
Every lender pulls out your credit report and checks your credit score when you apply for a loan or credit card. This is called a hard enquiry which will have a slight impact on your credit score. The impact can be all the more negative when the application gets rejected. But with a good credit score, the credit approval chances are higher as the lender will not have a reason to reject your application. Higher approval chances guaranteed with better terms on the credit product.
Borrowers with poor credit score may refrain from applying for a new loan or credit card until their credit health is regained.
3. Get Higher Limits
Your income and good credit score are the two major determinants of your loan or credit card approval. Moreover, they can get you higher loan amount or higher credit limit on cards. The lender assumes you a worthy and responsible borrower. With a low credit score, you may get approved for a loan or card, but the rates may be higher, and the amount may be lower. Hence having a good credit score helps you borrow more at a better rate of interest.
4. More Negotiating Power
When an individual with a poor credit score applies for the loan, the application may get approved, but the interest rates may be brutally higher. It could even become burdensome to make the repayment. The applicant will not have any power to negotiate with the lender to reduce the interest rate. It will be a case of ‘Take It or Leave It’. On the contrary, individuals with a good credit score will have higher approval chances on the loan and card applications. Moreover, the borrower has the power to negotiate with the lender to demand for much lower interest rate by comparing the offers from other lenders. This can save you a lot of money and help in swifter repayment.
Getting a good credit score is possible only if you follow a responsible credit behaviour. Following are some of the factors that are important to maintain a good credit score.
Consistent Repayment: A major part of the credit score depends on your past payment history. It holds a weightage of about 35% on your credit score. If you want to maintain a good credit score all the time, your repayment record should be clean with 100% positive repayment. Never miss a single repayment in order to enjoy a robust credit health. Making repayment on time is the only assurance that you give the lender about your loyalty towards the credit.
Low Credit Card Utilisation: Experts recommend that keeping your credit card utilisation ratio below 30% will help you gain a good credit score over a period. It is a sign to the lenders that you are not credit hungry. Things like maxing out credit card limit or defaults on the bill payment can make it harder to maintain a good credit score. Use your credit card only when it is essential or during emergencies when you have no money. Limiting credit card usage can help you avoid debts and gain a good credit score.
Diversification of Credit: The creditors want to see how well you are experiences with all types of credit. In that sense, having a mixture of all forms of credit is a good factor to maintain a good credit score. Use a credit card to keep your credit active always and have both secured and unsecured loans to attain the mixture of credit. This is an important factor as a certain percentage of weightage is provided in credit score calculation.
Avoiding Multiple Credit Applications: When you are desperate for a loan or credit card, you may tend to apply with multiple lenders just to get approved. But, you should remember that it can work against you. Each time you apply for a credit, a hard enquiry is raised by the lender. Each hard enquiry will have a slight impact on your credit score. Multiple hard enquires will impact your credit score negatively. Moreover, a rejection on a credit application can put you in a tight spot as it may be a hindrance to getting approved from other lenders. Hence avoid applying for multiple credit in order to maintain a good credit score.
Length of Your Credit History: Soon after you have taken the first credit, your credit score will be updated only after a few months. It may take between 3 to 6 months to get your credit score. It could be hard for the lender to judge your credit profile with a shorter credit history as you are not so experienced with the credit. A lengthy credit history gives a detailed understanding about your credit behaviour which in turn plays an important role in credit approval. Keeping your credit activities always active and borrowing as early as possible are important to maintain a good credit score.
Credit card plays an important role in shaping up your credit score. If you have never borrowed before, you may not have any credit score. It could be difficult to get approved for a credit as the lender may not be able to judge your creditworthiness. Getting a credit card could be easier if you have a consistent monthly income. With a credit card, you will get a credit score based on your monthly bill payment. If you are a credit cardholder, following are some of the important things that you must be aware in order to maintain a good credit score.
Maxing Out Credit Card Limit: Every credit card holder is bestowed with a credit card limit based on his/her income and eligibility. The cards come with reward points which after accumulation of certain points can be redeemed against cash or various gift items. Lured by such reward points and offers, many people tend to use credit card often with a hope of repaying all when the due date has arrived. Though using a credit card is a good thing for your credit score, a prudent usage is recommended in order to avoid a late payment or default.
Some people tend to max out the credit limit every month. You must be aware that your credit activities are reported to the bureau who generates the credit score. When you continuously wipe out the credit limit, the lender assumes a credit hungry individual, and availing future credit becomes difficult. Hence always keep your credit card utilisation ratio to have a good credit score.
Closing Old Credit Cards: If you feel that you are unable to deal with the credit card debt or you have too many credit cards, you may want to close any one of the credit cards that you do not use or need. Closing a credit card, especially an old one, can be a wrong decision which can impact your credit score. As you already know that length of the credit history plays an important role in improving your credit score. When you close an old credit card, the credit history on the card will be erased after a period. It can slightly impact your credit score.
Moreover, you need to close the old credit card by clearing all the outstanding dues. If you fail to payback the dues, your credit score will take a hit as it will be reported by the lender as default or unpaid. Hence, think twice before making a decision to close your old credit card.
Having More Than One Credit Card: When you get approved for more than one credit card, it is better you grab all of them. As a prudent credit utilisation is an important factor in building a good credit score, with multiple credit cards, you will have higher credit limits overall. You can split the spends and manage a low credit utilisation ratio which is vital for a good credit score. Upon that, you can also enjoy numerous offers, discounts, reward points, welcome gift, etc., on multiple cards.
On the downside, having multiple credit cards can lead you to miss the payment on the credit card as it could be difficult to remember the due date. To ward off this issue, you can opt for auto debit option which automatically debits the due amount from your bank account.
Paying Only Minimum Due Amount: Credit card companies make money from the interest rate you pay on the outstanding amount. Though there is an interest period for up to 55 to 60 days, many end up paying interest as they choose minimum due amount each month. Credit card issuers allow you pay up to 5% to 10% of the outstanding amount as the minimum due amount. By paying this, the credit cardholder can avoid a late payment or default. The rest of the balance will be carried to the next month bill payment with interest as fixed by the card issuer.
Consistently paying minimum due amount can add up more debt which may eventually become difficult to repay. Moreover, it can affect your good credit score significantly. Hence, always try to make your payment in full each month.
Credit Limit Increase: If your income has increased, you may approach your credit card issuer to request for a credit limit increase on your card. Credit limit increase has a lot of benefits. It can lower your credit utilisation ratio which is a good factor for maintaining a good credit score.
There are both secured and unsecured loans. Personal loans are considered unsecured loans which do not require any collateral. It is one of the most popular loans that can be availed easily just based on your income and credit score. Regular repayment on your loans can improve your credit score. Let us look in detail about the impact of loans on credit score.
If you have been recently introduced to credit score, you will have several queries around this system. Below are the 10 basic things that you should know about credit score.
1. You can check your credit score and get a credit report for free
Every credit bureau and third-party websites provide credit score for free. You can sign up with them and check your credit score for free any time. It is good to check your credit score frequently in order to keep a track on your credit health.
You can obtain your base level credit report for free once a year from the credit bureaus. By checking your credit report, you can look for errors if any and get it resolved by raising a dispute with the credit bureaus.
2. Not everyone has credit score
One gets his/her first credit score only after having taken any form credit from banks, NBFCs or online lenders. It could be a credit card, personal loan, home loan, two-wheeler loans, loan against property, gold loan, car loan, etc. Any type of borrowing will yield your credit score. But if you have never borrowed before, you would not have any credit score. when you check your credit score, it will show as ‘NH’, meaning ‘No History’.
3. Your credit score is calculated based on…
You might wonder how the credit is calculated. Soon after you have borrowed, the credit score is generated in 3 to 6 months. Your credit score is calculated based on your repayment history, credit utilisation ratio, credit age, credit mix and number of hard enquiries, etc. You will have a good credit score if you have a good combination of all of these factors.
4. Checking your own credit score doesn’t hurt it
There is a misconception among people that checking your credit score frequently hurts it. It’s a myth. Checking your credit score often helps keep track of your credit health. It does not reduce at any point of time. Hence monitor your credit health frequently to have a good credit score.
5. Credit score from different credit bureaus is not the same
When you check your credit score from more than one credit bureau, you will surprisingly find it to be different. It will not be the same as each credit bureau has different mechanism to calculate the credit score. The weightage of score given to each parameter vary as there is a slight difference in the percentage allocation. However, the variations won’t show a huge difference.
6. It takes time to build an excellent credit score
Yes, it may sound discouraging, but it’s the fact that it takes time to build a stellar credit score. However, it is not hard either. You can keep your credit score intact just by repaying the credit you have taken from your lender. Building an excellent credit score requires mixture of all credits, low credit utilisation ratio on credit cards, long credit history, etc.
7. Multiple credit applications simultaneously can hurt your credit score
When you are in desperate need for money, you may tend to apply for a loan or credit card with multiple lenders in order to get approved at least from just one lender. Though the act is done by impulse, it can have a negative impact on your credit score. The multiple credit applications will invite multiple hard enquiries by the lender which can have a slight impact on your credit score.
8. Maxing out credit limit can impact your credit score
Although it is slightly hard to prevent the urge of using your credit card when you run out of money or you want to grab an exciting offer, you should be extra careful while using your card. Every credit card comes with a pre-approved credit limit up to which you can spend per month. Your credit score will go for a toss when you max out your credit card limit often. Hence, it is important you diligently use the card within your means as defaults can have a negative impact on the score.
9. Good credit score can get better terms on all types of loans
When you have a good credit score, it bestows with you the power of negotiation. You can bargain with the lender for better interest rates as you have a great credit health. It gives you an upper hand while borrowing from banks, NBFCs and online lenders. Apart from the better terms, you can also get higher approval chances on a loan or credit card application.
10. Poor credit score can be improved
Poor credit score happens due to various reasons. It can be because of a default, late payment, settled or written off account or a foreclosure. A negative status on your credit report can be disheartening, but it can always be improved with a prudent credit behaviour. You can take actions to improve your credit score by clearing the past dues to the lender.
After you have identified you have a low credit score, you can approach the lender to pay off your past dues. The first thing you need to do is to get your outstanding dues from the lender and pay them back in full. After having made the repayment, get a ‘No Due Certificate’ which confirms that you have cleared all the dues. You can also seek the help of a credit improvement services offered by various financial services companies who collaborate with the lenders on your behalf to clear the past loan or credit card issues.
Within 30 to 45 days from making the payment, the lender will report your payment details to the credit bureaus who keep a record of your credit activities. After getting the report, the bureaus will update the latest payment details on your record. You have now successfully prevented your credit score from dropping further. However, this is just the beginning.
After having cleared the past dues, you should have any one of the credits being active. It could be a credit card, debt consolidation loan or a home loan. As you make regular repayments on any of the credits, your credit score keeps soaring and reach a position of good credit score.
Human errors may occur when lender reports your credit activities to the credit bureaus who update your credit score. Hence it is essential that you keep tabs on your credit score. Following are some of the ways using which one can monitor the credit score.
Free Alerts: There are financial services companies that provide free credit score throughout the year. By subscribing to their SMS and Email alerts, you can get notifications on any change on your credit score. It helps in monitoring your credit score without fail.
Credit Report from Credit Bureaus: RBI has mandated that every credit bureau must issue base level credit report for free once a year to the customers based on request. You can send a request to the credit bureaus for your credit report and look for the recent updates and errors.
Credit Monitoring Services: There are financial services companies who offer credit monitoring services for free or for a small fee. You can get an expert level analysis on your credit health which can help you make informed borrowing decisions in the future.
1. Who calculates my credit score?
Your credit score is calculated by the credit bureaus based on your credit activities that are reported by your lender.
2. What is considered a good credit score?
Any score of 750 and above is considered a good credit score that is eligible for all kinds of loans and credit cards. With this credit score, one can get low interest rates.
3. Where can I check my credit score?
You can check your credit score with the credit bureaus namely Equifax, ExperianTM, CIBILTM, CRIF HighmarkTM. Third-party financial services companies also provide credit score for free. You can check by visiting their official website.
4. Can I get a loan with the credit score of 650?
Yes, you can! But the interest rates and other terms on the loan will not be favourable to you. You may not become eligible for a higher loan amount.
5. How often is my credit score updated?
There is no fix time in updating your credit score. An update may happen when there is a hard enquiry, late payment, default, settled or written off account. There may not be any update if no credit activity takes place.
6. Does checking my credit score frequently hurt it?
No, you can check your credit score any number of times, and it does not hurt it.
7. How can I get a good credit score?
To get a good credit score, you need to do the following:
8. What is the difference between a credit report and credit score?
Your credit report is the detailed report of your credit activities which will also have your credit score. A credit score is a numerical expression that is calculated based on your credit activities reported by the lender.
9. How long will it take to improve your credit score?
There is no fixed time. Your consistent and disciplined financial behaviour over a sustained period will ensure credit score improvement. Since the credit score is based on consistent performance, one can assume you need to give yourself minimum six months for your score to show significant improvement, and sometimes the entire process can even take up to a year.
10. Can I get a loan or credit card with a credit score of 500?
It is difficult to get approved for a loan or card with this credit score as it is considered a poor score. It is an indication that you have some negative issues that requires immediate attention. You can clear your past loan or credit card issues to improve your credit score.
11. After having closed all my past outstanding dues, will my credit score improve immediately?
Closing your past dues will prevent your credit score from further dropping but improving credit score takes time which can be done only if you have any form of credit open or active. By consistent repayment on the existing loan, your credit score will show an improvement gradually.
12. Will a default from many years ago still remain on my credit report?
Yes, it does. A default once made is reported to the credit bureaus who update it on the credit report. It remains on the credit report for up to 8 years.
13. Why is the credit score from all credit bureaus different?
As each credit bureau uses different mechanism to calculate the credit score. The weightage on each parameter will be different for each bureau. However, the difference may not be a huge.
14. Can I get approved on loans and card with poor credit score?
The chances are slim as the low score indicates you have negative issues with your credit. You may get approved for secured loans, but they will come with a higher rate of interest.
15. What are the perks of having a good credit score?
A CIBIL™ score is a three digit number between 300 and 900 that gives potential lenders a quick idea of your loan
Credit repair involves rebuilding your credit health to a level where you become eligible for loans.
A CIBIL™ Score is an indicator of an individual’s credit worthiness. It impacts the individual’s ability to borrow
A credit report is a history of your credit behaviour and contains detailed information on all your loan and credit
A credit rating - also known as a credit score - is a 3 digit number between 300-900 that gives potential lenders
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
Yes. In fact, a credit score of 850 is very good! Most lenders look for a minimum credit score of 750 to approve loans
There are several ways in which you can improve your credit score. Depending on how good or bad your score is,
Is 800 a good credit score? Yes. In fact, a credit score of 800 is very good! Only a small percentage of people reach,
Is it possible to obtain a free credit check or credit report? The answer is yes and no!
Your CIBIL™ Score plays an important role in getting loans and credit cards sanctioned, because it gives lenders
It is not possible for anyone, either lenders or borrowers, to get a CIBIL™ score or credit report for free.
It is important to know that there is no such thing as a CIBIL™ defaulter list. There used to be a defaulter list earlier,
There is really no number that can be established as the average credit score in India. Many people see regular
You can repair your credit absolutely free if you do it yourself! However, many people choose to get professional help
First, it is important to note that there is no ‘Defaulters List’ that is maintained or circulated by CIBIL™ or any of the other
Sourav and Ankit are watching the New York Marathon on TV and decide that they want to run a marathon.
In India, the best credit score to have is one that is 750 or above. The three credit rating agencies that operate in India
Is a credit score of 700 good? While it is not a very bad score, it is not good enough to automatically qualify
It is difficult to get a loan with a credit score of 650. Most banks look for a minimum score of 750 when deciding
It is not likely that you will get a loan with a credit score of 600. Most banks look for a minimum score of 750
It is difficult to get a loan with a credit score of 550. Most banks look for a minimum score of 750 when deciding
A poor CIBIL™ score can increase your financial problems and make it difficult to access credit, whether as a loan or credit.
One common worry that runs through your mind after you have made a credit card settlement is,
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