A high credit score plays a crucial role in securing one’s financial future. Maintaining a good credit score can easily help avail loans from the financial institutions at competitive rates. Through advanced analytics, the credit bureau assesses an individual’s credit details and then allocates a three-digit number ranging from 300 to 900. Most financial institutions are willing to lend funds to applicants with a score of 750 and above. For CIBIL score calculation, details such as repayment history and borrowing details, among other things, are taken into consideration. The score is analyzed to ascertain the potential risks involved in lending money to individuals.
How to maintain a good credit score?
If one has not taken credit yet, the secret to establishing and maintaining a good score is to start small. This can include holding one credit card instead of multiple cards from credit card companies or availing a small loan. It is also essential that timely payments get reported to the credit bureau. On getting a credit card, make sure that the balance gets paid in full and on time. If payments are delayed, it will not only affect one’s relationship with the credit card companies or company, it will also lower the credit score.
Checking on the credit report at least three times a year can help inculcate financial discipline as the individual becomes well informed about how he or she is managing funds. This helps to spot errors, if any, and also get it corrected immediately, before it can impact the scores. Credit report called Credit Information Report contains details of a person’s past credit history.
Importance of high credit score
Banks and other financial institutions take into account an individual’s credit score to determine whether or not to lend funds. The first impression that the lender has of the applicant is his/her credit score. Lower the credit score, higher will be the interest rate. Lenders can even demand collateral when they realize that the risk is high.
Personal loan, car loan and other kinds of loans can be availed with the help of a high credit score. For example one can avail the best home loans in India with a good credit score. Most home-loan providers are willing to consider scores of 700 and above. The closer the score is to 900 higher are the chances of getting a loan that meets all of the applicant’s terms. Therefore it can be concluded that one can get the best home loans in India through a good credit score. On the other hand, a bad credit score can dampen one’s chances of getting funds at competitive rates.
A high credit score can not only help get favourable loans but also lesser insurance premiums. The credit bureau allows insurance companies, broking firms etc. to access a client’s credit details. A poor score could result in payment of higher insurance premiums.
Missing out on a single payment can bring down a person’s credit score, and a poor score can result in loan applications being turned down. Even though it takes a long time to build a good score, a few missed payments here and there can water it all down. Additionally credit card companies can reduce the limit when the credit scores are poor. Financial institutions want to be certain that the applicant’s has a good payment record before they decide to lend funds.
Factors that can have a positive impact on credit scores
Some of the factors that can positively impact a person’s credit scores are:
- Paying credit card bills on time
- Properly utilizing the credit limit that has been approved
- Not applying for a new credit card unless necessary
- Making sure financial institutions submit payment details on time to the credit bureau
- Review credit history on a regular basis to avoid surprises
- Paying bills in full
- Keeping balances low
- Maintaining a healthy mix of credit (80% in secured loan and 20% in unsecured loan)
It is important to note that holding a high credit score does not automatically mean that an applicant will get whatever he or she desires from the financial institutions. Lenders take other factors as well into consideration for approving or rejecting loans and other funds. The parameters differ from one institution to another. Some of these other factors could include debt to income ratio, income, employment situation etc.
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