Financial terms like credit score can seem daunting to people who have no knowledge of the working of the financial world. Understanding the concept of credit score and why it is important, on the other hand, need not feel like a task beyond your abilities. Here is a gist of what a credit score means and what is the significance of having a good credit score.
What is credit score?
A credit score is the number that lenders depend on while contemplating on giving you a loan. The credit score signifies the probability of them getting repaid if they were to grant you the loan or even a credit card. The better the credit score, the more willing the lenders are to provide you with the requested funds. It is a reflection of your credibility and creditworthiness, and hence is an important aspect of your financial life.
What is considered to be a good credit score?
Your credit score is also dependant on your payment history. Your track record when it comes to management of finances, late payments, etc. play an important role. While different lenders have different parameters to judge credit scores, on the scale of 300 to 850, a score of 750 and above is considered excellent, 700 to 749 a good one, while a score between 550 and 649 is considered poor and below 550 is considered bad. A good credit score will not only give you better chances of getting approved, but help you save on interest rates.
How can you improve yours?
There are various measures you can take to increase or improve your existing credit score. These measures will not show immediate results but reflect over time:
- Pay your bills on time:
Paying you bills on time makes a huge difference when the lenders review how reliable you are when it comes to paying bills. Utility bills, rent and cell phone payments go a long way in increasing your credit score. It leaves a good impression on the lenders and sets a good precedent. On the other hand, being late in your dues or not being able to pay the agreed amount will be a setback in your score.
- Manage credit card utilisation
Pay off your debt and keep your balances low on credit cards and other revolving cards to show the lenders that you can manage your credit well and don’t max out on your credit cards.
- Keep unused credit cards open:
Don’t close unused credit cards as long as they are not costing you a lot of money in terms of annual fees because closing an account reflects in a negative way when it comes to your credit score.
While having a good credit score is important, you don’t have to stress about not having the ideal one. There are various other nominal things you can do that will impact your credit score in a positive way. Consciousness with your financial actions and a few other measures will get your credit score up over time.