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What Is A Credit Score?

IndianMoney.com Research Team | Posted On Monday, January 14,2019, 03:16 PM

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What Is A Credit Score?

 

 

Credit score is an important factor that helps get a loan approved. A credit score is a three digit number assigned to an individual which relates to his repayment history. The credit score generally ranges from 300 to 900. There are various factors that play an important role in building credit score like credit utilization ratio (CUR), payment history and clearing dues and loans. Banks and lenders use credit score to understand the credit worthiness of an individual.

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SEE ALSO: How Can You Improve Your Credit Score By Availing Personal Loans?

What Is A Credit Score?

Credit Score Factors:

Listed below are the important factors that influence the credit score of a person:

  • Credit utilization ratio
  • Number and age of credit accounts
  • Types of credit accounts
  • Total debt
  • Payment history for loans and credit card dues
  • Payment history of utility bills
  • Public records like bankruptcy
  • Number of credit accounts recently opened
  • Number of hard enquiries made

SEE ALSO: Why You Need To Check Your Credit Report?

How to Improve Your Credit Score?

Below mentioned are some of the aspects you need to work on to improve your credit score:

  • Repayment history: this is one of the most important factors in determining the credit score of an individual. If a person has a long history of repaying loans and credit card dues on time, then the person is likely to have a high credit score. Late payments of dues or loan defaults can bring down the credit score. To boost your credit score, make sure to pay all bills on time.
  • Credit utilization ratio: Credit utilization ratio is a key factor in determining your credit score. Generally, a good credit utilization ratio is less than 30%. This shows you manage debt well and are in control of finances.
  • Credit history: most of the credit information bureaus keep a track of how long a person has actively used credit. They keep a track of the age of the account opened and how the balances and transactions are carried out in that account. The longer the history of the account, the better it is for the credit score. 
  • Number of accounts: the credit information bureaus also keep track of how many loans and credit card accounts you have opened.
  • Credit mix: the credit scoring models also take into account the different types of credit you have availed like loans and credit cards. You have secured and unsecured loans. Unsecured loans (No security is pledged) charge higher interest than a secured loan. Have the right credit mix (Unsecured vs Secured Loans) to get a good credit score.
  • Negative credit information: If your credit report has negative financial information than it can negatively impact your credit score.
  • Hard enquiries: when a borrower applies for a loan or a credit card, then the banks or the lending institutions request for the credit information of the borrower from the credit information bureaus. This is known as hard inquiry. Hard enquiries generally lower your credit score by 5- 10%. Too many hard enquiries can negatively impact your credit score.

SEE ALSO: Tips To Improve Your Credit Score For A Home Loan

What is a good credit score?

Credit score

 Ratings

300-579

 VERY POOR

580 669

 FAIR

670-739

 GOOD

740 -799

 VERY GOOD

800 and above

 EXCEPTIONAL

Check free credit score from IndianMoney:

Get Free Credit Report by visiting the IndianMoney.com website and follow the below mentioned steps:

  • Click on 'Get Free Credit Score now'
  • Fill in the details required like Name, email address, gender, Date of birth, address, PAN Card Number and Mobile Number.
  • An OTP will be sent to your registered mobile number.
  • Enter the OTP
  • Click on 'Get my Credit Report'
  • You will see credit score and credit account summary.

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