If you are looking to apply for a loan, the one thing that everyone will advise you to check is your credit score. So what is a credit score? And how does it impact your financial life? Let’s find out!
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What is a credit score?
A credit score in simple terms is the measure of an individual to repay a loan – their creditworthiness. It is a three-digit number that ranges between 300 – 900 where the higher your credit score is the better it is for you. There are four credit information companies licensed by the Reserve Bank of India. They are Credit Information Bureau India Limited, Experian, Equifax, and Highmark. The most popular in India is Credit Information Bureau India Limited. You can easily check your credit score online.
Your credit score is calculated by applying a mathematical algorithm to your credit history from a number of sources such as credit card companies, banks, governments, and collection agencies. The three-digit number that is churned out depicts your credit-worthiness and is called your credit score.
What factors contribute to a good credit score?
One may wonder what is taken into consideration while calculating the credit score so that they can be mindful of those factors. While calculating the credit score the following factors play a major role –
- Timely Re-payment of credit
- Over/underutilization of approved credit
- Credit mix
- Duration of credit history
- Frequency of applications of credit history and,
- Demographics
What are some ways to improve your credit score?
Some of the ways suggested by CIBIL itself to improve your credit score are listed below –
- Pay your Dues – The most important contributing factor to a good credit score is paying your dues on time.
- Apply for New Credit in Moderation – Do not take on too much credit as it may portray that you are always seeking new credit.
- Keep a Track of your Joint or Co-Signed Accounts – A bad decision in your joint account will reflect poorly on your credit score, so don’t lose track of these accounts.
- Healthy Mix of Credit – Have a healthy balance of secured and unsecured loans in your financial life.
How important is a good credit score?
To lead a healthy financial life it is imperative to have a good credit score. Some benefits that come with having a high credit score are –
- Helps you in getting better credit cards.
- Quick approval of loans
- Better rates of interest
Pay your dues on time and lead an honest and healthy financial life with a good credit score!.
