The fourth part of the Know Your Lender series sheds light on ways to improve your credit score. So, what is a credit score and why is it important for your finances? Let’s take a look.
Credit Score
A credit score is a three-digit number ranging from 300–900 that helps lenders determine the type of credit product you can be offered and the interest rate that can be charged. Individuals having credit score above the 730–760 range are considered to be good borrowers from a lender’s perspective.
Computation of your credit score can include:
Payment History details whether or not your credit card dues and loan EMIs have been paid on time. Timely payments help build a good score, while frequent untimely or delayed payments lead to a low credit score.
Current Unpaid Debt is debt that is unpaid post the due date. This can include accrued interest due to late payments and outstanding principal amount among others. The more debts you repay in a timely manner, the better your credit score will be.
Credit History, like payment history, apprises lenders about your ability and intention to repay debts. A good credit history includes the number of loans taken and repaid. Higher the number of loans successfully repaid, higher your credit score will be.
Credit Used lets lenders ascertain the percent of available credit you have used. Using the full credit limit causes your credit score to dip. Since it is considered a sign of higher credit need on your part (and hence potential inability to repay down the road).
What is the importance of having a good credit score?
A good credit score helps you avail loans quickly and at lower interest rates. Let’s say you are applying for a home, car or personal loan — having a credit score of 730–750 and above makes you a favourable customer for banks and lending institutions. On the other hand, a low credit score might create difficulties in availing a loan or might make loans very expensive.
In a nutshell, having a good credit score helps you save money when you borrow and gives lenders confidence in you.
How to improve your credit score?
As the Chief Risk Officer at axio, Amrita’s role involves ascertaining which customers can be given credit without overburdening them with debt. Credit scores along with good financial history are some of the parameters that are looked into by lenders while evaluating customers.
Here are some tips from Amrita on how you can build your credit score.
Amrita emphasises the importance of planning before taking credit, this helps in efficient repayment and the making of a good credit score. She advises borrowers new or old to go by the adage, “Never borrow more than you can repay”. In her opinion, until both borrowers and lenders develop this financial discipline, the full positive impact of credit will not be seen in India.
As the Chief Risk Officer at axio, Amrita’s role involves ascertaining which customers can be given credit without overburdening them with debt. Credit scores along with good financial history are some of the parameters that are looked into by lenders while evaluating customers.
Here are some tips from Amrita on how you can build your credit score.
Amrita emphasises the importance of planning before taking credit, this helps in efficient repayment and the making of a good credit score. She advises borrowers new or old to go by the adage, “Never borrow more than you can repay”. In her opinion, until both borrowers and lenders develop this financial discipline, the full positive impact of credit will not be seen in India.
Here’s how you can improve your credit score, according to Amrita.
axio strongly believes that a good credit score is essential for keeping your financial health in great shape and securing your future.
