A credit score is a crucial component assessed by financial institutions to sanction a loan or a credit card. A healthy credit score represents your sound credit health and responsible financial habits. A desirable credit score helps individuals access the greater credit limit, lower interest rates, and better deals in credit products. If you are a first-time credit card buyer, the term credit score must be significantly new to you. Let’s begin by comprehending the term credit score and its ranges.
What is a Credit Score?
A credit score is a three-digit number provided by credit reporting agencies like CIBIL. The CIBIL records every individual’s credit-related information and compiles them into reports. The score given by the credit reporting agencies ranges between 300 to 900. Most credit card issuers prefer cardholders with a credit score of 750 and above 750 to sanction credit cards and personal loans.
What are the Various Credit Score Ranges?
Understanding the credit score ranges is essential to gauge where you fall on the spectrum. This information will help you work on the score to improve and maintain it as required.
A Credit Score above 750 – 900
A credit score that ranges between 750 to 900 is considered excellent. It helps the borrowers get higher credit limits on credit cards with lower interest rates and other attractive benefits.
A Credit Score between 700- 749
A credit score between 650-700 is considered a good credit score, and the applicant becomes eligible to avail of some benefits. The applicants are charged comparatively lower interest rates on credit cards and loans.
A Credit Score between 650-699
A credit score between 650-600 is considered a fair credit score. The applicant’s options are limited, but there are still chances for credit approval based on the financial institution. The applicant’s credit history can be improved with time, and the interest rate charged is also affordable.
A Credit Score below 600
Lastly comes a credit score below 600 which is considered poor credit. An extremely low credit score suggests the applicant is poor at finance management, discouraging the creditors from lending the money. It also causes leaders to hike interest rates, fees, and deposits due to increased risk.
Bad credit is always expensive in the pocket. Determining the factors that affect the credit score will help improve them with time.
Factors Affecting Credit Score
Now that you know the various credit score ranges, you must also know the factors that affect your credit score. You can work on these factors to improve your credit score to expand the credit limit on the credit card.
The pending credit bills affect your credit score. Not paying bills before the due date displays poor financial planning, thus lowering the credit score.
Credit Utilisation Ratio
The credit limit is the maximum amount the borrower can spend using the card. Though you can use up to the authorized credit limit, it has adverse effects on your credit score. Keeping your credit utilization ratio less than 30% helps improve your credit score.
You must check your credit report periodically to check for discrepancies in the information. This will help you eliminate any errors in the report by informing CIBIL on time and getting them rectified to improve your credit score.
Importance of Maintaining a Good Credit Score
A credit score has a massive impact on your credit card and the credit limit offered by the issuer. Below are the reasons why you need to maintain a good credit score.
Lower Interest Rate
Interest rate plays a notable role in credit. Getting lower interest rates is important to make the loan affordable. Good credit scores will fetch you a lower interest rate in the market, and you will also be eligible for better deals on your card.
Better Chance of Credit Card or Loan Approval
A good credit score will increase your chances of being approved for new credit. It also gives you a better negotiating power to lower interest rates than usual.
High Credit Card Limits
With higher credit scores, your credit limit will be considerably increased. Creditors will likely lend you more money because of your proven creditworthiness, thereby considering you as a lower risk profile.
Access To The Best Rewarding Credit Cards
Good credit cards offer you the best rewards like cash back, travel points, and other benefits. A high credit score is rewarding as it makes you eligible for the best credit card with the most exciting deals on credit cards.
Credit scores advocate a responsible credit behavior of an individual. A good credit score is instrumental in obtaining the best credit cards at an affordable interest rate; you must clear all your pending records and maintain a healthy repayment. You can get access to various benefits and avail of them by simply repaying your bills on time.
Building a good credit score takes patience and proper financial planning. You will probably have a low credit score if you are a new user. As long as you pay the credit card bills on time and keep paying your loan EMIs, your score will increase steadily. Ensure that the payment is set up to auto debt in your credit accounts. This step will help make timely payments, thereby building a solid credit history over time.
Start improving your credit score today to avail yourself of several credit benefits.