Importance of Credit Score
A credit score is a three-digit number that shows your creditworthiness. It is the first thing that lenders check when you apply for a loan or a credit card. It gives them the idea of whether you can repay the borrowed sum on time or not. Hence, it is important to maintain a good credit score. You can maintain your credit score by making all your payments on time, checking your credit reports frequently, paying off existing debt on your credit cards and keeping your credit utilization low below 30%.
How is a credit score calculated?
Each credit bureau has its own credit scoring model which they use to compute your credit score. Your score may be different, but the factors that each bureau takes into consideration are the same which are as follows-
- Payment History: 35%
- Credit Utilization: 30%
- Credit History Length: 15%
- Credit Mix: 10%
- New Credit: 10%
What does your credit score helps you to know?
Your credit score is a snapshot of your credit health. Have a look at what your credit score helps you to know-
- Helps you to know your current credit status
When you check your credit score and report, it lets you know where you stand and what you need to focus on. Your credit report is a summary of your present and past credit transactions. Checking your report regularly also helps you to identify any discrepancies that may have lowered your score.
- Helps you to get the best offers on loans and credit cards
With a good credit score, borrowers are also eligible to get best offers on loans and credit cards. To fetch the best offers on credit products, you should maintain a credit of 750 and above.
Advantage of Credit Score
A good Credit score ensures that you get many advantages over those having no Credit score or those having a lower score. You are entitled to the following advantages if you have a good Credit score:
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Lower interest rates and better terms on credit products
One of the benefits of having a good credit score is that banks might offer you loans and credit cards at a lower interest rate. You can also get other benefits as well such as a discount on the processing fee and eligibility to get a higher loan amount.
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Improve your chances for credit card and loan approval
Borrowers with an excellent credit score are considered as a low-risk and therefore the chances of being approved for loans and credit cards are higher.
- Access to the best rewarding credit cards
With a good credit score, you are also eligible to get access to the most rewarding credit cards in the market, including those that offer the lowest interest rates and the best rewards, such as cash cashback, travel points, and other benefits.
- Get approved for a higher credit limit on your credit card
With a good credit score, you can also get approved for a higher credit limit on your credit card. Creditors will likely lend you more money because of your proven creditworthiness.
- Eligible for a pre-approved loan offer
Borrowers with a good credit score are also eligible for pre-approved loan offers. Generally, a pre-approved loan offer is given by banks to the existing customers who have a good credit history.
Therefore, it is crucial to maintain a good credit score if you want to enjoy all the above-mentioned benefits.
