What is credit score and why you should know about it

Looking for a loan or a credit card? In that case it is essential for you to know about credit score & how it works. It is the analysis of your credit history and repayment behavior to release a 3 digit number ranging between 300 and 900. This number is your credit score and is an important factor to determine your ability to apply for a credit facility from a bank or a financial institution.

The credit score is calculated after considering 36 months of credit history. An algorithm is used to compare and consider data points around credit trends and depth of credit. There are four main factors contributing to your credit score:

• Payment History – payment history focuses on how a particular customer repays his/her existing credit.
• Credit Exposure – is an account of how long you have been exposed to credit.
• Type of Credit – tracks the variety of credit that has been availed by you.
• Credit Utilization – is a consideration of how the availed credit has been utilized.

These points are crucial to determine your future loan or credit card application. Now a days there are multiple websites where you can check your credit score free of any charges.

What is a good credit score?

It is always suggested to maintain a score range of 700 to 900. The more your score is towards the 900 mark the better are your chances to access a hassle free loan in the future. A customer with high credit score is considered to be a responsible borrower.

How to work towards a good credit score?

It is essential to inculcate good practices to build a good credit score. There are some tried and tested steps which can help you to achieve that.

• Frequent review of your credit history – this will safe guard you from any sudden credit related hiccups. Following your credit history will also help you identify any future anomalies.
• A healthy mix of credit – a healthy mix of secured and unsecured loan is always helpful for the borrower. Home/Auto loans are secured credit, whereas Personal Loan, credit cards are considered unsecured credit.
• Timely payment – you should be vigilant when repaying your loan or credit. A borrower who never misses a due date is considered a responsible borrower, and his/her ability to apply for credit card / loan in the future is more prominent.
• Credit balance – be modest while using credit. Never over utilize your credit limit. And apply for a new credit card or loan only when your previous acquisition is paid.

Note: If you maintain a good credit score, it will be easy for you to apply for a smooth loan or credit application when needed.

How high credit score will help you?

The advantages are many and you should always consider to work towards a good credit score.

• Get a high credit limit
• Quick and easy processing of loan/credit application
• Negotiation power when it comes to interest rates
• Availability of range of credit cards with multiple features
• Pre-approved card/loan offer from financial institution

Be conscious while you deal with a loan or a credit facility. If you are upfront and take calculated measures, it will be easy for you to look for better credit/loan features in the future and will also keep your credit score in a handsome shape.

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