What is a Credit Score?
Credit Scores are considered important when it comes to applying for loans. Lenders usually check for your score to evaluate if you are a credible borrower. A credit score indicates how well you have maintained and repaid your loans on time. Usually the score ranges from 300 to 900 where a score above 750 is considered good. Hence, if you have a high credit rating, you can easily get an instant personal loan online at lower interest rates. Therefore, you need to maintain a high score and frequently check it using Buddy Score to track your credit behaviour.
This article will help you understand why it is important to have a good credit score and how to check your score for free.
4 Major Credit Bureaus in India
The major credit bureaus generate credit scores namely:
- Equifax: It was registered as a Credit Information Company in 2010 where it collects credit information about an individual and generates accurate reports. The credit score ranges from 1 to 999.
- Experian: It analyzes the individual's credit behaviour and generates a credit report within 20 days. The score typically ranges from 300 to 900.
- TransUnion: Credit Information Bureau (India) Limited (CIBIL) analyzes and generates reports for individuals and entities. The credit score ranges from 300 to 850.
- CRIF High Mark: It is the only credit bureau approved to operate in India by India's Reserve Bank. It was established in 2007 and licensed in 2010. The credit rating ranges from 300 to 850.
Importance of Having a Good Credit Score
- Low-interest rates: If you have a high credit score above 750, lenders will be ready to offer you loans at lower interest rates. They might also be ready to give discounts on interest rates for your loans.
- Eligibility for loans: You automatically become eligible to get loans when you have a high score. It also shows that you are a low-risk borrower.
- Credit Cards: You can get credit cards with competitive deals and offers when you have a good credit score.
- Higher loan amount: A high score represents that you can manage your loan repayment without defaulting. Therefore, lenders might consider offering you higher loan amounts.
- Quick approval of loan: Another significant advantage of having a high score is that lenders approve your loan immediately without taking much time to verify.
- Adds additional value: Having a high score gives extra weight to your financial status, especially if you plan to apply for a visa.
- Benefits for the future: A high credit score comes in handy when you apply for any loans in the future. Therefore, it is always best to maintain a score of above 750 to get maximum benefits in many ways.
Factors that affect your Credit Score
Payment History: It accounts for 35% of your FICO score making it one the most essential parts of your credit score. As a result, it has a large impact on your score. Moreover, lenders first check your payment history to assess your ability to repay the loan without defaulting.
Credit Utilization Ratio: The Credit Utilization Ratio (CUR) indicates how much loan you have utilized to your credit limit. If you use your credit more tha the limit, it will reduce your score. Hence, to avoid this, maintain your credit utilization ratio below 30% of your income.
Credit Inquiries: Everytime you apply for a loan, the lender conducts a credit check to determine your score which creates a hard inquiry. The number of hard inquiries is reflected on your credit report and accounts for 10% of your FICO score model. These multiple hard inquiries reduce your credit score which in turn affects your credibility as a borrower.
Length of Credit History: It accounts for 15% of your FICO score. You credit score will increase if you have a long tenure period for your loan and consistent repayment history.
Credit mix: It accounts for 10% of your FICO score. Having a diverse credit mix, such as car loans, home loans, credit cards, etc., represents how well you can manage various credits. Therefore, it also improves your credit score significantly.
Steps to Check Your Credit Score for Free
Many fintech platforms provide options for checking your credit reports with your credit score. Likewise, You can quickly check your credit score using Buddy Score and get a whole credit report instantly. Here are a few steps you can follow to check your credit score.
- Step 1: Visit the official website of Buddy Loan and select "Check Credit Score."
- Step 2: Enter the required personal information such as date of birth, email address, registered mobile number, and PAN.
- Step 3: Once you enter the OTP that you received, you will get your credit score and report instantly.
EndNote
Credit scores play a major role in many parts of your life especially when you are applying for a loan. Since, personal loans are offered instantly without any collateral, lenders consider this score as a major deciding factor before approving your loan. Therefore, you have to maintain your score above 750 to be considered for loans. You can improve your score by making timely payments of your EMIs, repaying your past debts and maintaining your credit utilization under the limit.
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