Afraid that you’re not in the good books of lenders? Not sure how to begin your Credit Score game? Relax, we’re here to help. Keep calm and read on.
If you are a rookie to Credit Score and are not sure about what it is, why it is of such high importance, and what you can do to begin garnering a high score, relax and take it easy. We’ll take a look into each of these aspects one at a time.
What is your Credit Score?
First things first, there’s no reason for you to be worried if you’re beginning with a clean slate. Achieving and maintaining a good score is not rocket science. You’ll be fine.
Now, let’s take a look at what a Credit Score is. It is a three-digit number in the range of 300-900, representing your credit behaviour and your financial footing. Wondering why this is important?
Let’s imagine that you need a Home Loan for purchasing an apartment. Or, let’s say you need a car to make the commute to your work easier, but can’t purchase one without the help of a Car Loan. In such situations, you’ll have to reach out to banks/lenders to borrow credit, banking on which you can fulfill your goals.
Additional Reading: What Has Credit Score Got To Do With Home Loans?
Your Credit Score is what helps lenders decide whether or not it is safe for them to lend money to you. The higher your score, the better will be your chances to receive credit from lenders.
Are you confused about why a good score will increase your chances of getting approval on a loan? Credit Score stands for an individual’s ability to repay the borrowed amount. Your score is a numerical representation of your creditworthiness. Read on to know why a good score is an absolute must-have.
Additional Reading: 2 Simple Ways To Increase Your Credit Score in 2019
What is considered a good Credit Score?
The closer your score is to 900, higher are the chances for you to get easy approval for a loan or Credit Card. Let’s take a look at the different Credit Score ranges:
- 300 -550 : If your score falls in this range, unfortunately it is less than stellar and needs a lot of mending. A poor score such as this can be a result of missed deadlines and unpaid dues.
- 550-650 : A score in this range is considered average. You will still have to work at improving it.
- 650-750 : If your score falls in this range, it is a good one and lenders will consider granting you credit in the form of a loan or a Credit Card. However, you might still not be eligible to negotiate and get a good deal.
- 750-900 : With a Credit Score in this range, lenders will be more willing to offer you a line of credit. Also, a score in this range will give you the power to qualify for better deals in terms of rewards and interest rates.
Additional Reading: 5 Ways In Which Your Credit Score Affects Your Life
What are the factors that determine your score and how can you get a shiny one?
Now that we are aware of what your Credit Score is and what makes for a good score, let’s dig deep into the elements that go into determining your score.
To begin with, the sum you’ve borrowed, the debt you still have, and whether or not you’ve been defaulting on payments are three crucial factors that have a direct impact on your score. Let’s take a closer look at how.
- Your payment history: This holds 35% of your score. It tells potential creditors whether you pay your bills on time. Additionally, foreclosures and bankruptcies can damage your score. So, paying your dues and bills in full and on time is a sure way to a good score.
- Amounts you owe: Comprising 30% of your score, your debt is another variable that shapes your Credit Score. So now you know why it’s important that you clear your debts and outstanding payments.
- Age of your credit history: The length of your credit history carries a good weightage of 15%. A long credit history portrays you as a less risky borrower. Here’s what you can do. Instead of closing old Credit Cards, continue to use them to pay for utilities. That way, you’ll not only have a higher credit limit but the age of your accounts will also contribute to a good score.
- New lines of credit: This holds 10% of your Credit Score. It’s important to remember that enquiring for too many lines of credit can hurt your score. Instead, work on your Credit Utilisation. Limiting the amount of credit you use to 30% of the entire credit available to you is a good way to start.
- Your credit mix: Diversifying your credit mix accounts for 10% of your score. Once you have a foolproof payment plan in place and are quite steady and wise with your Credit Card, you can consider opting for a small Personal Loan that you can repay easily. A mix of different types of credit will boost your score.
Pro tip: To have more command over your finances, it’s necessary that you check your Experian Credit Score for FREE!
Additional Reading: Make Your Credit Score Do More For You
With these points in mind, you’re sure to tackle anything that comes in your way to an enviable Credit Score! Can’t wait to do more with your Credit Score? You’ve arrived at the right place!
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