We as a society are becoming more and more dependent on credit. But are you aware of your credit score? If no, then you must, because it is important in today’s time. Credit score determines if you are eligible for a home loan, personal loan, car loan, gold loan or other credit options available and sometimes even job. Usually, credit score represents the danger of non-instalment that you present to a loan specialist.
What is a Credit Score?
The credit score is a financial instrument which is used to ascertain the likelihood of an individual paying back the money owed by him/her to the lender. There are various credit bureaus that evaluate your personal report and send you the score. Every organisation has different evaluation systems, and the calculation is based on a wide variety of factors. There are three major credit score bureaus who evaluate credit score, Equifax, Experian, and TransUnion. India’s first credit information company is CIBIL (Credit Information Bureau Limited, India) which was established in 2000. It is worth mentioning that all three bureaus use a different method to evaluate the credit score but still, the credit score information might differ. The credit falls in a range of categories exceptional, very good, good, fair, and very poor. Also,undergoing a regular cibil score check is considered to be essential.
The credit score is generated by two major companies called (Fair Isaac Corporation) FICO and VantageScore Solutions.
FICO Score Range
Vantage Score Range
It is important for you to know the credit score as it has many advantages attached to it. If you have a good credit score, you will be entitled to the following advantages:-
- One of the most important benefits of having a good credit score is that the bank might offer you lower interest rates and better terms on credit products. If you want a loan for a higher amount then you can also get discount on processing fee.
- A good score will automatically improve your chances for credit card and loan approval because such borrowers are considered as low-risk borrowers.
- You also become eligible to access most rewarding credit cards available in the market, cards which offer great rewards points, cash backs, discounts on travelling, dining and shopping, that too at the lower interest rate.
- With good credit score enjoy a higher credit card limit, the lender will lend you more money due to proven creditworthiness.
- If you have a good credit score you will also be eligible for a pre-approved loan offer. A pre-approved loan is given to a borrower who is an existing customer and have a good credit history.
What Are The Components of Credit Score?
A credit score is evaluated on the given factors:-
- Credit payment history of the individual
- Frequency of applications of new credits
- Credit mix
- The current debts of the individual
- Duration of time of credit history
How To Improve Credit Score?
There is always a room for improvement, you can improve your credit score by taking care of a few basic things like repayment of the loan on or before time. You should not ignore overdue bill as it can be a major impact on your score. Limit the use of a credit card as it will not extend your credit amount and don’t apply for a new credit card especially if you want to take a loan.
Bottom line: Credit Score gives a holistic view of your financial history. It tells a lender if you will be able to pay the loan amount or payable amount on time. If a positive credit score is maintained by you then surely you can avail many benefits like a lower rate of interest, pre-approved loan and eligible for many rewarding credit cards. Even if you have a bad credit score then there is always room for improvement you just have to take care of a few things, one of them is paying instalments on or before time. I strongly recommend this guide which shares in detail about Singapore’s Credit Bureau Report system and how it works online.