Every financial institution or bank checks your credit score before granting you a loan or credit card. A credit score is a three-digit score which ranges between 300 and 900. It shows your creditworthiness. It is known as the CIBIL score. If you do a credit score check regularly, it will help you to monitor your financial actions.
Some people avoid a credit score check as they are afraid of what they might find. Also, some people have the misconception that checking their credit score can affect their credit. You should note that it is essential to check your credit score to have control over your financial life.
We will be telling you all about credit score and credit score check in this guide.
What is Credit Score, and How Does it Work?
The credit bureaus calculate credit scores. They use several factors, like payment history, credit mix, credit history, etc., to evaluate your credit score. Financial institutions or banks use credit scores to decide whether to offer you a loan, credit card, or other credit products.
Credit score ranges between 300 – 900. However, it would be best if you always kept your score close to 900. A high credit score allows you to get a good mortgage deal. A score between 750 – 900 is an excellent credit score; it shows that you are a genuine customer and made all payments on time. A score ranging between 650 – 749 is a good score; it shows that you have good credit behaviour, and your score also increases. A score between 550 and 649 is a fair credit score, but it will be risky if you want a quick loan. A score ranging between 350 – 549 is a bad credit score, and in this range, it is very challenging to get a loan.
A high credit score offers you a quick mortgage with lower interest rates and other financial benefits too. Generally, banks or other financial companies consider a credit score of 750 and above ideal. So, it is important to have a score near 900. Doing frequent credit score check would help you reach the score.
Additionally, It is very crucial to maintain your credit score. If you are doing a credit score check on a timely basis, you can get better financial offers from banks or other financial companies. Keep a close look on your credit score, which is very beneficial for your future.
Calculation of Credit Score:
Every credit bureau has its model for calculating credit scores. Below are some constant factors which every credit bureau uses.
- Payment history – 35%
- Utilisation of credit – 30%
- Credit history length – 15%
- New credit – 10%
- Credit mix – 10%
How to Maintain a Good Credit Score
- Always maintain a good financial relationship by paying bills and loans on time with banks and financial companies.
- All your EMIs or bills should be paid on time
- Never become a defaulter on any loans.
- Do not apply for multiple loans. Apply for a single loan at once.
- Do a credit score check from time to time.
- Maintain a good balance between all your credit accounts.
- Keep your credit utilisation ratio at a low level.
Benefits of a Good Credit Score
If you have a good credit score, then you can avail many financial benefits.
- You can get the best credit cards.
- You will get quick loan approval. A good credit score gives you an expressway for your loan application. Banks approve your loan application quickly.
- With quick loan approval, you can get a lower interest rate too.
- You can get a higher credit limit on your credit card.
- You are also eligible to get a pre-approved loan offer.
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Whether it is good or bad, you must do a credit score check rather than having no idea where your credit stands. A credit score is a part of your financial cycle, and you should always take care of it. For a better financial future, it is important to maintain a positive credit score. Start paying your credit card bills or loan repayment on time to improve your credit score.