A credit score is simply a number that reflects an individual’s creditworthiness. The three-digit score is calculated by Credit Bureau's, also known as Credit score. The credit score encompasses your entire credit payment history, over a given period of time, across the types of loans availed, and across different financial institutions. A credit score is of prime consideration by financial companies for sanctioning various types of loans, including personal loans. A good credit score reflects good creditworthiness, and thus a better chance to avail of loans.
What is considered a good credit score?
On the basis of your repayment behavior and credit behavior, a credit score can range between 350 and 900. Any score above 750 means that you are a reliable and genuine borrower. If you have a credit score above 750, and you don't have any major or minor errors in your credit profile it means that you can secure better deals on your loans.
If you are planning to apply for a personal loan for any sudden expenditure, or to fund any big-ticket purchase, you must always remember to check your credit score first. Lenders require a minimum credit score of 750 for being eligible for a personal loan.
How to know your credit score?
You can easily find your personal Credit Score score by talking to our Relationship manager today. After providing the requisite details, you can generate your personal Credit Information Report (CIR).
Why is a credit score important?
A credit score is of paramount importance as it reflects the following key factors with regards to your credit history:
A credit score reflects your repayment history: Whether you have defaulted on payment of your EMIs, or made your credit repayments on time, all transactions pertaining to your credit repayment are shown in the credit score. You must remember that past repayment on your loans counts for 35% of your overall credit score. If you are planning to apply for a personal loan, then you must remember to pay your existing EMIs on time.
A credit score reflects your existing debt: Before you apply for a personal loan, you must know that your existing debt counts for 30% of your credit score. A financial company will use the credit score to find the existing amount of credit sanctioned and utilized. This is also known as credit utilization.
A credit score reflects the type of credit availed: Financial companies look into the credit score to find whether an individual has availed a balance of credit. This factor contributes 10% to the credit score. In other words, before you apply for a personal loan, you must remember to create a balance of credit or availing both secured and unsecured loans. Not availing of credit altogether can also impact the credit score.
A credit score reflects repayment duration: Your credit score reveals the duration of the loans along with your repayment history. The tenure of your loan contributes 15% to the credit score.
Credit score reveals unsuccessful credit inquiries: You must remember that each time you make a credit inquiry, it is reflected in the credit score. Along with multiple credit inquiries, rejection of your credit request will result in a poor credit score.
The bottom line: Thus, it is important to have a good credit score for availing credit of all types, including personal loans. While a good credit score will help you to secure credit at an attractive rate of interest, you might end up taking loans at higher rates of interest with a poor credit score. With attractive interest rates, you can save money, and make progress on achieving your financial goals.