Credit score is one of the first terms that people get acquainted with when they start learning the basics of personal financing. It is an important term that everyone should know about as this 3-digit score holds the power to influence lenders in your favour when you apply for a loan.
Though having a fair understanding of credit score is important, one must know about the various implications and definitions that we come across while looking for a credit score. Through this article we have tried to put forth some learning about the credit score and as we go further we will discuss different credit score ranges, their meaning and impact on our financial options.
If you’re struggling to improve your credit score or to maintain it, we’re here to help. In this post we have compiled a few common habits that you’ll find in people with a good credit score.
Credit Score Basics
Credit score is a three-digit number that is given to every individual whose credit information is with credit bureaus, also known as credit information companies (CIC), such as Experian and CIBIL. The credit bureaus calculate credit score on the basis of an individual’s credit information, which is submitted periodically by banks, credit card companies and other money-lending institutions.
Your credit score is not just a reflection of your financial wellbeing. It is also a key to get a loan application approved quickly. If a lender is impressed by your credit score, then they may even consider offering you a home loan, personal loan or any other loan at favourable interest rates. Therefore, everyone must build and maintain a good score. And to do so, understanding the credit score range is important.
Each credit bureau has different credit score range. For instance, CIBIL score ranges from 300 to 900 and Experian credit score ranges from 330 to 830. Your credit score can fall anywhere from 300 to 900 of range, with 300 being the lowest and 900 being the highest credit score. Higher the score lower the risk of getting loan application rejected by lenders. In addition, each credit bureau uses different credit scoring model to generate your risk profile as a loan borrower. Therefore, your credit score from two different credit bureaus may not match.
Credit Score Range, Rating and Impact
Credit score is usually categorised as follows:
800 and Above
Impact: An excellent credit score reflects that the borrower had consistently paid his/her loan instalments and credit card bills on time and had no negative mark on their credit report. Lenders find hard to say no to borrowers with excellent credit scores. This kind of credit score implies that you’ll get various loan benefits such as quick loan approval, low interest rate and favourable deals on all kinds of loans.
Key Tip: It takes a lot of work to reach the excellent credit score range and higher efforts to maintain it. To enjoy the benefits of having an excellent credit score range, keep paying your loan instalments and credit card bills on time.
720 – 799
Impact: Credit score of most people fall in ‘Good’ category. People with credit scores in this range has good chances of getting approval on loan application as it indicates the borrower is dependable and can be given loan but the risk is still there. Therefore, depending on lender, you may or may not get as many loan benefits as you might have expected.
Key Tip: To cement your chances of getting loan approval and loan benefits, borrowers must constantly work towards improving their credit score. Be careful when handling debts as a single mistake can slip can take you down.
500 – 699
Impact: Fair credit score indicates that borrowers have performed neither too good nor bad when it comes to handling their loan payments and credit card bills. They are more at a risk of getting their loan application rejected. Even if lenders grant them loan, they will not get it at favourable terms and conditions. The loan will most likely be given at a high rate of interest, high down payment and fewer or no benefits.
Key Tip: From this point, you’re either moving up or down the credit score meter. Therefore, it is important to tread carefully when treating your debts. To move your credit score up, decrease the debt amount, pay your bills on time and pay your loan instalments.
Less than 500
Impact: There is no chance for people with poor credit score to get approval on their loan application. It is a high risk category for lenders. Banks and other financial institutions are always wary of people with poor credit score as they do not trust them to pay the loan amount on time. It shows that the borrower is financially unstable, has excessive debt or has missed repayments in the past. Even if a lender agrees to give you loan, they will ask for a guarantor to reduce the risk. This is because, if under any circumstance you’re unable to repay loan to the lender, the guarantor will cover the cost of your loan amount.
Key Tip: For people with bad credit score, there is only way to go and that is ‘UP’. To go ‘UP’ on the credit score meter, borrowers must rebuild their credit score by making timely payments, decreasing debt amount, stop applying for loans and avoid using credit cards till the previous loan amount clears. Do this consistently and with time, your credit score will go up.
Quick Ways to Improve Your Credit Score
If your credit score lies anywhere below the excellent credit range then remember that you always can improve it. It may take some time but by making a few changes in your credit handling ways, you can reach the excellent credit score range in no time. However, you will have to be consistent in your efforts so that you can once again gain the trust of lenders. To improve your credit score, the following are a few quick tips:
- Always pay your credit card bills and loan instalments on time.
- Avoid frequent use of credit card
- Refrain from using more than 30 to 40 percent of your credit limit.
- Don’t apply for too many credit cards.
- Don’t apply for loans frequently.
- Check your credit report periodically to track your credit performance and check for mistakes if any.