A higher credit score increases your chances of obtaining a loan. Banks or NBFC check the customer’s credit score before granting a loan. A good credit score increases your chances of getting a loan. Banks and NBFCs look at a customer’s credit score on loan applications, including home loans, auto loans, etc. Your credit score is determined by your credit history and your loan payment history.
Today, many credit bureaus prepare clients’ credit scores. These include Trans Union CIBIL, Experian, CRIF High Mark, and Equifax. A person’s credit score ranges from 300 to 900. The higher their credit score, the better their chances of obtaining a loan. Generally, a credit score greater than 750 is considered good.
Credit Score: How To Improve It?
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You should try to keep your credit score high. Let us tell you what factors determine your credit score.
Your history of paying bills or loans:
The credit bureaus keep track of your bill payments and loan installments every month. They calculate your credit score based on your few years of records. Therefore, if you have a credit card or have taken some type of loan, you must pay it on time. Even a single late payment or default can lower your credit score by up to 100 points.
Your credit utilization rate
Credit Utilization Ratio (CUR) means how much you use in a month of the credit limit that you were granted. The credit limit is given on the credit card. This means the maximum amount that you can pay with your credit card. The credit utilization ratio has a big impact on your credit score. The more you use your credit card, the higher your credit utilization rate.
Your loan portfolio
Your credit score also depends on the type of loan portfolio you have. It means how much secured a loan is and how much unsecured you have taken. However, this has a limited impact on your credit score.
The age of your credit card or loan
If your loan is very old or your credit card has been used for many years, this is good for your credit score. This shows that you are using the loan correctly. You pay your fees on time.
Number of credit inquiries
Whenever you apply for a loan or credit card, the bank or NBFC requests your credit score from the credit reporting agencies. If you repeatedly apply for a loan or a credit card, it is not considered good. This can lower your credit score in some ways.
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