A Credit score, a numeric number that ranges between 300 to 850, is the most integral factor that depicts the true financial history or standing of any person. Although, every lending bank or NBFCs have own specific standards to assess the credibility of a person, who seeks any kind of financial assistance, CIBIL, VantageScore 3.0, and FICO 8 are most popular and accepted by almost all financial institutions. In CIBIL, VantageScores, and FICO anything above 690 is considered good and above 720 is excellent.
Knowing your score and where you are standing can help you to plan your budget and control your financial transactions with the right strategy. Today it’s not difficult to know your credit scores, many online platforms provide the detailed online credit score report.
To start with, one must understand each range of the credit score and what it means or predicts
Before applying to any loan or credit card one must check his/her online credit score report.
In India, a credit score is issued by four main credit bureaus i.e. CIBIL, HighMark, Equifax, and Experian. But CIBIL (Credit Information Bureau India Ltd.) is the premier credit information bureau in India. VantageScore is developed by Experian, TransUnion, and Equifax, and FICO uses the algorithm for credit scoring in the United States.
As mentioned above, scores range from 300 to 850, the higher the score, the better your chances of gaining access to great offers concerning credit cards or loans or any other type of credit assistance.
Every credit scoring bureaus do the score calculations with the help of many factors related to how and when an individual does the financial transactions. But the most significant factor is the on-time payments of bills or EMIs.
Let’s check furthermore on how every credit scoring system breaks them down.
How Credit Score Affects You?
A credit score tells the credit history of the individual, i.e. whether he/she makes payments on time or not, how much is a debt he/she is carrying, how he manages his finances, etc.
Although many banks or NBFCs still offer credit cards or loans to people with bad credit scores, it comes with higher interest rates with limited options. You may also need to provide some form of collateral or make little deposits or down payment to secure the respective financial product.
As your credit score improves, i.e. points increased, your chances of getting better credit products become high with low-interest rates. For example, an individual with a 623 CIBIL credit score would have to pay 70K more on a 20 lac loan in 30-year loan tenure as compared to a person with a 760 score.
Better Credit Score Means Quick Access To Many Credit Options With Low-Interest Rates.
Where To Start?
Knowing where you stand is always good and allows you to balance things with some smart workings. Thus, it becomes essential that you monitor your credit score at some intervals to gauge your financial position.
Today it’s not difficult to get your credit score, many banks or personal finance websites provide detailed online credit score reports, as we mentioned above. But ensure that you stick to one credit scoring bureaus else you’ll get confused.
Sticking to one will allow you to improve and progress well. Improving your score here will automatically enhance your score at other places too. Also remember, the score might fluctuate i.e. 4 to 6 points will go up and down, but these little variations won’t impact the larger goal of making your financial health well.
Wait, There Is More? – Good Credit Scores Doesn’t Always Ensure Good Choices.
Although credit score is an imperative factor used by banks or lending institutions, having a good score doesn’t guarantee that an individual, for sure, will get better choices or even credit approval.
Credit score depicts the credit history of the individual, i.e. whether he/she repaying the borrowed amount or EMIs on time or not. A person can have a good credit score by paying bills or EMIs on time, but the person might be in great debt.
Your monthly income and total debt also play an important role that is considered by the lender to make a decision on approval. Banks or NBFCs see the person’s or borrower’s complete financial portfolio where your source of earnings and accumulated assets are also counted by them so that they can make an informed decision without much risk.
In a credit report, how you’ll be going to manage the payments are not there. Thus, lending institutions use the debt-to-income ratio calculation to assess whether an individual can make the repayments or not.
But still, credit score has its important significance that plays an integral role in one’s financial well-being.