Like it or not, your Credit Score judges you! Find out how it helps lenders perceive you before they approve or reject your credit application.
Bummed about your Credit Score acting like your judgemental aunt? Don’t fret. You can always change its impression of you by being smart with your banking activities in the future. Before you do this, however, it’s important to understand the role of a Credit Score. What does it do? Why do lenders depend on it? Let’s find out!
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Let’s take a subject that you may find interesting, like sports. If you look closely, in most sports, numbers are a direct reflection of a player’s performance. For instance, in cricket, a player’s overall growth is tracked by pure statistics – his batting or bowling average, the number of centuries or wickets and much more. It’s the same case with football – numbers such as goals scored, assists created, and so on are used to assess how good a player is, technically.
Now imagine banking to be a sport – and credit is an advanced level of the sport. Now, you’ve been briefly introduced to the world of credit. Your experience has been gauged, and accordingly, a Credit Score has been formulated based on your decisions and repayment behaviour. Think of your Credit Score as your batting average – the better it is, the more chances of you getting picked for an advanced tournament.
To put it in simple terms, a Credit Score, in the simplest possible way, defines who you are as a borrower – no wonder it works as a quick reference to lenders.
How does my Credit Score define me? In categories, to be precise! Credit Scores basically fit you in one of four categories, based on your score. To help you better understand what these categories mean, we’ve come up with some fun names for better recall!
The Abyss: 0 -560
If your score is anywhere amidst this wide range, banks may perceive you like an abyss, aka, a bottomless pit. This low score range may instil within them a fear of not being able to recover any debts from you. It also goes without saying that you can even stop dreaming of applying for a Loan or Credit Card while you’re at this stage.
Don’t be disheartened if you have a low Credit Score though. Remember that it can always be improved over time. Over a period of time, you can see improvement, provided you make the right choices and close out all your outstanding debts.
The In-Betweener: 561-720
If you fall into this category, chances are lenders may consider giving you credit, but they’ll make sure they charge you a high rate of interest. At this stage, lenders view you as an in-betweener; someone who has managed to make most of their payments on time but have delayed a couple of payments in the past. It is these minor defaults that can really take your score from a safe position to this category of uncertainty.
Additional Reading: How Late Payments Can Leave You Credit-Sore!
As an in-betweener, you can, however, speed up your progress, because you’ll probably get approvals on Loans and Credit Cards, which you can repay like a boss. Sure enough, your score will grow – track it while it grows by checking your Credit Score!
The Average Joe: 721-880
If you’re an average Joe, you may land a decent Loan or Credit Card with manageable interest rates, but may not be rewarded with a great credit limit. While lenders can see that you’ve been good at repaying your debts as well as making sensible credit choices, they may be cautious about the credit limit they are ready to offer you.
This may be due to multiple reasons starting from your income to your debt to credit limit ratio. Remember, experts suggest that you utilise only about 30% of your existing credit limit. This way, banks know you’re not one to be tempted by the idea of maxing out your credit. When this trust is built, lenders may consider increasing your credit limit.
or Mrs. Reliable: 881-960
Ah, the dependable ones. Here’s to all you Rahul Dravids of the banking world. You’ve got a pretty solid credit history and ideal statistics on your credit report. Your score is quite enviable. At this stage, most lenders wouldn’t mind approving your Credit Card or Loan application. You’ll also get pretty decent interest rates and flexible credit limits.
Banks clearly see you as someone who knows to play safe and repays debts like a well-disciplined adult. If you’re here, you’re surely in the clear. While this range is more than good enough, some lenders may still hesitate to give you the crème de la crème of Credit Card and Home Loan offers. Why? Because they’re maybe looking for that ‘x-factor’ that makes you stand out as an exceptional credit guru.
The Credit Guru: 961-999
Make way for the who’s who of the banking world. Way ahead of their class, these perfectionists enjoy ultimate offers and favourable terms from lenders. It’s clear that lenders see you as someone who can really handle credit like a pro. At this stage, Loan and Credit Card approvals are almost a given – with a score like 960 or 975, you’ll surely want to flaunt! Do keep in mind that getting here requires you to be a well-earning individual who has absolutely mastered the art of credit utilisation and debt repayments to such an extent that you can probably make money on the side training the rest of your friends to learn your ways.
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Remember, that maintaining this elite status comes with its own set of challenges. Any hiccup or dip in your financial activity can affect this score, and although you’re far from getting high-interest rates and credit limits, a descending graph on your credit report can slowly pull you down in the near future.
So there we have it, ladies and gentlemen. Like it or not, your Credit Score is here to stay; the only way to deal with it is to befriend it and see you for the champ that you truly are!