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What Is A Good Credit Score?

IndianMoney.com Research Team | Updated On Wednesday, January 02,2019, 06:22 PM

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What Is A Good Credit Score?

 

 

Credit score is a three digit summary of credit worthiness. This score ranges from 300 to 900 with 900 being the best score. A Credit Score of 750 and above could mean easy sanctioning of loans. Banks and NBFCs easily sanction loans on having a credit score of 750 and above.

Factors which affect credit score:

Payment History: Credit history is very important when it comes to a credit score. Around 35% weightage is assigned to payment history. A lender gets an idea on how consistent you have been with repayments.

Amount to be repaid: This is the loan amount due and credit card outstanding. Around 30% weightage is assigned. This is the loan amounts availed from banks and NBFCs.

Credit Mix: This is the amount of secured and unsecured credit availed. A personal loan or credit card is a prime example of unsecured loans. These loans are not secured against collateral. Home loans and car loans are an example of secured loans. These loans are secured against a house or car. Around 10% weightage is assigned to credit mix.

Length of credit history: This is the duration of active credit accounts. It’s wise not to close old credit cards as this increases length of credit history. Around 15% weightage is assigned to length of credit history.

New Accounts: Availing multiple credit cards and taking many loans lowers credit score. Whenever you apply for credit, banks and financial institutions check credit history and credit score. These are hard enquiries and lower credit score. Around 5% weightage is assigned to new accounts.

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SEE ALSO: How To Improve Credit Score?

What Is A Good Credit Score?

What is FICO Score?

Fair, Issac and Company or FICO has a variety of credit scores used by lenders and credit card issuers. FICO scores range from 300 to 850.

FICO is a data analytics Company, based in San Jose, California which focuses on credit scoring services. Before applying for credit card, auto loan or mortgage, check FICO score.

FICO score is a 3 digit number ranging from 300 to 850. It goes up to 900 for industry-specific scores. FICO scores are assigned based on Credit Report. FICO score says how likely it is you’ll repay debt. Lenders use FICO scores to manage accounts, assess you and other applicants or determine interest rates. Fair, Issac and Company is the pioneer of the credit risk score way back in 1981.

Why FICO scores?

A high FICO score gets loans at competitive rates and terms. A low FICO score means loans are denied or sanctioned at high interest rates.

FICO extends to insurers. A lower FICO score means higher insurance premiums. Some insurers have a threshold FICO score, which you must pass to avail insurance.

SEE ALSO: How to maintain a good CIBIL score?

Types of FICO Scores:

  • Base FICO
  • Industry-specific FICO

FICO has three versions of the base FICO score. This is because it works with data from three different consumer credit bureaus, Equifax, TransUnion and Experian. FICO has the FICO BankCard score and FICO Auto score.

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

What is VantageScore?

In 2006, the three big credit reporting bureaus, Equifax, TransUnion and Experian joined together to create the VantageScore. Several versions later, the VantageScore 3.0 had a blockbuster debut in 2013. More than 6 Billion VantageScore credit scores influenced lending decisions between July 2016 to June 2017. VantageScore 4.0 was launched in 2017.

VantageScore ranges from 300 to 850. These factors determine VantageScore.

  • Payment History: Are you paying bills in time.
  • Age/Type of credit: How old are your loans. This is also the track record of repayments.
  • Credit utilization: What’s the percentage of available credit you use.
  • Balances: This refers to total loan balances. This is both current and delinquent loans.
  • Recent Credit: Lenders want to know recent credit activity. How you availed a new credit card or personal loan recently? This gives an idea on recent financial performance.
  • Available Credit: This shows you are using only the credit you need.

How to improve credit score?

  • Check credit score and report: This is the very first step of building a good credit score. Credit Information Report popularly called CIR gives details of credit history. It shows the loans you have availed and how regular you are in repayments. Credit Bureau’s like CIBIL and Experian collect details of loans availed and repayments from banks and financial institutions and prepare your credit report. You are then assigned a credit score. IndianMoney.com has tied up with Experian to give free credit score and credit report. If there are mistakes in credit report you get a bad credit score. If accounts are not reported “closed” by banks and there are open accounts which are not yours, expect a bad credit score.
  • Check status of accounts: Check if “written off” or “settled” account is marked incorrectly in credit information report. Rectify this immediately and improve credit score.
  • Check payment history of each account: Look at Days Past Due Section very carefully. Anything apart from “0” and “XXX” is viewed in bad light. If you have missed payments, try to pay EMIs in time. This improves credit score.
  • Opt for dispute resolution: If you find incorrect information in credit report, opt for credit dispute resolution. CIBIL will contact you within 30 days. If banks say the disputed information is true, then nothing can be done. It’s wise to contact the bank before opting for credit dispute resolution.
  • Check credit card statements: It’s your duty to pay credit card dues on time or incur late payment charges or high interest. You have to pay interest/penalty even if you don’t receive the credit card statement. Asking and checking the credit card statement is your responsibility. If you don’t check credit card statement, then service charges, interest and penalties would be accumulating and you won’t even know.
  • Fraud on credit card: If you are a victim of credit card fraud, then the bank investigates and depending on the findings, there may/may not be a charge back. Resolve disputes with bank vis-à-vis credit card fraud so that credit score is not impacted. 

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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