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| Edited By: DNA Web Team |Source: DNA Web Desk |Updated: Nov 04, 2022, 08:32 AM IST
As we grow older, we must all have come across terms like "loans," "credit," and "debt." However, most of us don't fully comprehend the advantages and disadvantages of such words or how they work. Ignorance may be bliss when it comes to personal money, but it's a mistake that will follow you no matter how tiny or large the initial step you take toward taking out a loan is. Instead of waiting until you need credit to learn about language and scores, it is safer to comprehend and maintain your credit score in advance of such situations.
Therefore, having a good credit score makes it simpler for you to qualify for personal loans of all types as well as credit cards. But what does the phrase "credit score" actually mean? Let's understand that.
There are four credit reporting agencies or credit bureaus in India, and both borrowers and lenders value their credit ratings. These companies include Equifax, CRIF High Mark, Experian, and TransUnion CIBIL.
A borrower's credit score might be anywhere between 300 and 900. A bank or lender can determine whether you are a creditworthy borrower based on your credit score.
Scores of 750 or higher are regarded as satisfactory. Your credit score is based on your credit history, which includes the number of times you've borrowed money, the amount you borrowed, the types of loans you've gotten, and other important information.
Timely payment of loan EMIs and credit card bills is another important factor.
Every time you make a purchase, apply for credit, establish a new account, etc., your bank transmits information to CIBIL, which records it and aggregates it into your CIBIL report. A copy of your credit report will be requested by the lender if you decide to apply for a loan. They will learn more about your credit score and the terms they can offer you thanks to this. (Also Read: Elon Musk to begin mass layoffs at Twitter from today)
The 300–900 range can be formalised into five brackets for ease of use: 300–600 (needs attention), 600–649 (doubtful), 650–699 (acceptable), 700–749 (fine), and 750–900. (excellent).
Here’s why good credit score is important and how you can improve it:
Customise your credit limit:
Your credit utilisation ratio is considered as an important metric to calculate your credit score. The more you restrict yourself from exceeding the credit limit, the better it is for your credit score.
Check and rectify your CIBIL score:
CIBIL may make several mistakes while updating your documents or updating your records. It's vital to keep an eye on your CIBIL report to insure and avoid false details to bring down your credit score.
Do not deactivate all credit cards if you don’t use more than one:
It is recommended to keep all of your credit cards active if you have more than one but just wish to use one of them. Your credit score will be affected if you break bank credit lines. The best course of action is to keep these credit cards, cancel the monthly payments, and periodically check to make sure no payments are being made with them. This shows that you have regularly had several credit lines for a considerable amount of time.
While taking a loan, opt for a longer tenor:
Always try choosing a longer tenor for repayment of your loan. This will ensure that your EMI is low so that you can make payments on time. Your credit score will get better if you don’t delay or skip your paying EMIs.
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