What is a Credit Score?- Everything you need to know!

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A credit score is one of the most famous terms in personal finance. But in case you are unaware of it, then this article is for you. In this article, we will talk about the following topics-

1. What is a Credit Score?
2. How does your Credit Score affect you?
3.How can you improve your credit score?
4. Credit score ratings
5. Conclusion

1] What is a credit score?
A credit score is a number that helps understand a person’s creditworthiness (a person’s potential to return borrowed money). The credit score can range anywhere between 300 to 900. A credit score is based on a person’s credit history, the number of open accounts, and repayment history. Lenders such as banks and financial institutions, use the credit score to determine whether a person would repay the loan promptly.

There are different credit rating agencies in different countries, which in the case of our country is Credit Information Bureau (India) Limited (CIBIL), Also known as – The TRANSUNION CIBIL credit bureau. Also, there are 3 other companies licensed to calculate credit scores: Experian, Equifax, and Highmark. The credit score gives weightage to different factors: payment history (30%), credit exposure (25%), credit type and duration (25%), and other factors (20%).

2] How does your Credit Score affect you?
Credit Score surely affects you in different ways, which you need to understand. A credit score is used by banks and financial institutes to understand your creditworthiness, and in case you have a low credit score, it would be tough to get a loan. Mostly when you apply for a loan your credit score is taken into consideration before giving you a loan and also it would determine the interest rate and ease of receiving a loan. Also if you’re someone who has a credit card, you should know that a good credit score would help you get a better credit card and even greater credit limits. Also if you would like to know about the advantages of a good credit score then here they are:

1. Get better rates on car insurance- a good credit score would help you to get a better deal while purchasing car insurance. If you’re applying for insurance, the providers might use your credit score to determine whether to accept or reject your application and how much to charge you. Also if you’re already a customer, they might use your credit score to determine your premium rates.

2. Low credit card interest rates- When you apply for a credit card, the bank may check your credit score, and in case of a good credit score you would get a better annual percentage rate. Also if you’re applying for a new credit card or upgrade existing card, your credit score would help you to get better rewards and benefits.

3. Get approved for higher credit limits- We have discussed how a better credit score would help you to get loans at a cheaper rate, also you can get bigger loans at better rates.

3] How can you improve your credit score?

1. Pay your credit card bills on time, this would help you get a better credit score.
2.Avoid using over 30% of your credit card limit, this is one of the tricks to get a better credit score with just minimal effort.
3. If you use a credit card pay bills on time if you use a credit card make sure that bills get paid in time. Also don’t completely avoid using your credit card, you can use it and pay bills on time.
4. Taking too many loans or very high and defaulting on them would also affect your credit score.
5. Also avoid withdrawing cash using a credit card, this would affect your credit score badly as it depicts that person doesn’t have a good credit score.

4] Credit score rating
5] Conclusion – In this article, we have stated everything that you would require to understand credit scores better. A credit score is very important, and you should make sure that you have a good credit score. So that you have ease in receiving loans and also get extra rewards. So once you start earning make sure you pay your bills timely, also if you have a billing sim card or any kinds of bills pay them at the time, because I know some cases personally where such small payments have affected credit score.

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