The significance of high and low credit score

Credit score is the merit number of an individual/ company seeking a loan, The number assesses the borrower’s creditworthiness. Ranges from 300–900

What is a credit score?

A credit score in the numerical term derived after the analysis done on the credit report of the person’s credit file. In simple credit score determines the creditworthiness of the individual or the company; credit score comes from the credit history on how well the individual has performed in his previous credit need.

The individual or the company who is seeking a loan is worthy enough to repay it, will be determined by the credit score of one.

The credit score is a number ranging from 300–900 that interprets the creditworthiness of the loan seeker; low credit score and high credit scores are concluded by this number only.

Why credit report is considered?

Once an individual applies for the loan, the lender fetches the credit report of the individual from the necessary authorities to check the previous credit score and ability to repay the loan. In India, four credit bureaus provide credit reports of the individual.

Credit bureaus who give credit reports in India

Credit bureaus provide a detailed summary of your credit history from all your credit accounts. Payment history, including all your bank account repayment and financial institutions are covered by them. There are namely 4 bureaus in India, namely;

• Experian
• TransUnion CIBIL
• Equifax
• CRIF High Mark

Why is High credit score preferred?

The credit score closest to 900 and above 850 is always desired by the lender while going through the credit report of the loan applicant. A high credit score determines the high possibility of loan repayment hence high credit score is endorsed, while poor credit or low credit score is not desired.

How much credit score is the high credit score?

The range of credit score varies from 300–850 hence the score which is closest to 900 will be considered as high and improves the chance of loan or credit card approval. As per the opinions of financial experts, a number that is 750 or above will be considered high credit and enhance the chance of unsecured loans.

What are the benefits of maintaining a good credit score?

Efficient maintenance of the CIBIL score leads to some immense benefits to individual. Some of the advantages listed by consumer advocates are

• Makes one eligible for further loans

A high credit score makes you eligible for a loan or credit card with a good credit limit. If you have a good credit score, it signifies that you are experienced in handling credit and paying debt on time as per the credit history.

• Lower interest Rate on loans and credit cards.

Interest is the cost that one pays, along with the amount that one has taken. If your credit report is positive and reflects a good credit score, then you have to pay a comparatively lower rate of interest on loan or credit card.

Must Read : 7 Tips to Built strong credit profile for Business Loans

• Quick loan approved further

The most known benefit of having a good credit history is that the big or further loan gets easily approved. Those individuals who have long credit histories and high credit scores don’t have to wait too long for approval.

Better rates on car insurance and car loans

Car insurance companies may use credit scores to make decisions in determining the coverage and can even deny your application if you have a low credit score.

Points to remember for a good credit score

• Pay your bill /EMI on time- Do timely payments of all the bills, personal loans and EMIs.
• Low credit utilisation ratio to be maintained
• Don’t close old credit cards- You may lose the good credit history
• Maintain healthy relationships with banks and financial institutions
• Balance of secured and unsecured loans to be maintained
• Check your credit score from time to time
• Monitor your credit on a regular basis

What is Bad credit?

Bad credit or low credit score determines the person’s inability and failure to pay bills/EMI on a timely basis; even a company can have a bad credit score, and this factor diminishes the goodwill of the company. A bad credit score is based on the payment history and the current financial situation of the company; for an individual or for a company having a low credit score is not a good sign, and that makes you insufficient to take loans or credit card in future.

How much credit score is Bad credit?

As per the FICO score, bad credit is defined as the number which is generally not desired and preferred by the lender at the time of loan amount approval. If your Fico score is below 579 is not considered favourable and can become a serious threat to your future loan applications.

How much is the fair score?

The middle range between the 300–900 scale of measuring CIBIL score is 580–669 is considered a fair and reasonable credit score. However, loan borrowers who are in this range may face high interest rate or may have trouble securing loans.

How to improve a Poor credit score?

If you are the one who is facing the issue of a low credit score and wants to correct it, follow these simple steps and take your low CIBIL score ahead of 669.

Do online on time payments (Automated)

Follow this tip in all the ongoing loans and credit card payments, set up a reminder or put a deduction tool in your system to do online payments on time.

Use a secured credit card

It is suggested one must use a secured credit card, which is limited to some amount.

Pay your credit card pending bill

Set a repayment goal for all the debts and start working on it. If you have high credit card debt damages your credit score. If you pay more than the required amount, it will help you raise your credit score.

Significance of low credit score and its negative impact

The term credit score is the generally used term by financial institutions and lenders for determining the creditworthiness of the loan seeker. A score lower than 650 is considered an unpleasing and unaccepted number for approval of further loans.

There will be some following indications if you have a low credit score

• Straight dismissal of loan or credit card applications
• Additional documents and requirements need to get fulfilled for loan approval
• No possibility of getting an unsecured loan
• In case if an application gets approved higher rate of interest is to be paid as a low credit score comes with a risk of return.

What brought you to the bad credit score?

There are some common mistakes that people generally make and are not aware of that, which will bring them low credit scores. In order to keep your score high, avoid these few mistakes.

• Missing bill/EMI payments

In our hectic life routines, it is sometimes difficult to remember the date on which the payment is to deduct. Hence it is advised to avail of the facility of auto deduction. This will ensure timely payments.

• Improper payments

It is crucial to repay the money on time, the failure results in a high-interest rate and also disrupts the credit report of one. Hence in order to improve your credit score and keep your credit report healthy, it is advised to pay the amount on time.

• Multiple credits enquire

This is one of the most underrated factors that lower your CIBIL score every time you make a loan enquiry and seek loan approval. These inquiries are reported on the credit file and lower the credit score. Hence avoid applying for various debts at a time.

• No credit history

This point sometimes often sounds confusing to the reader; if someone is the first time applying for a loan, how can their credit history or CIBIL be determined? In order to resolve this issue, try applying for a loan with someone who has a good credit history, like a spouse or parents; this is the better way to build a good credit history.

Conclusion

A credit score is simply a numerical term that gives you marks for your previous credit performance that defines the ability to pay off the loan that you are seeking. The CIBIL score ranges from 300–900 and your performance is based on how well you have paid off bills and loans.

If your number is close to 900 or above 850, you will be considered healthy to take more loans; the higher you pay a loan on time, the higher will be your credit score signifies that you are a trusted person and returns money on time. On the other hand, if you have a low credit score, i.e., a score below 580 will not be feasible enough to give you credit.

Your loan/credit repayment history is not in your favour, and it’s risky to avail of your credit. If a loan is credited to a person with a bad credit score higher insurance premiums are charged with a high possibility of denial. At last, it is advised to pay borrowed money on time and maintain a good score.

Suggested Read: Check credit score using PAN card

FAQs

How long it takes to improve your credit score?

It takes a considerable amount of time to increase a credit score, depending upon the financial activity of the loan seeker.

What is the effect of Bad credit?

Bad credit habits generally have many consequences, like a high rate of interest in charged and very less options for loans available. Sometimes it is often harder to find a house and avail of certain services.

What are the 5Cs of bad credit-

Loan application is generally scored by condition, collateral, circumstances, capacity and capital of the loan seeker.

What are the types of Bad credit?

There are three types of bad credit available

• Bad credit by bad habits
• Bad credit by lack of knowledge
• Bad credit by blind side

Can the credit score be restarted?

There is no possible way to restart, clear and reset the credit report.