A good credit score is nothing short of a boon when looking for a loan. Your credit score is an indicator of your loan repayment capacity. Whenever you apply for credit, the lending institution will verify your credentials to decide your eligibility. An important aspect that will be checked is your credit score. A higher credit score not only increases the chance of you securing the loan but also helps in getting a better deal in terms of interest rate.
What Is A Good Credit Score?
A credit score is a three-digit number in the range of 300 to 900. It is an indicator of how reliably a person can repay their loans. The higher the score, the more trustworthy a lending institution assesses the borrower and vice versa. Most lenders consider a score above 750 to be good enough for giving a loan.
How To Achieve A Good Credit Score?
Here are some of the things that can improve your credit score:
Always Pay Timely: If you have any credit card or loan repayments pending, ensure that they are paid on time. Not paying your EMIs on time negatively impacts your credit score. If required, you can set up automatic payments on your account.
Scrutinise Credit Report: Sometimes, an error might find a place in your credit report. That is why it is extremely important to check your credit report for discrepancies.
Reduce Credit Utilisation Ratio: The credit utilisation ratio shows the percentage of available credit which you are currently using. Ideally, this figure should be below 30%. As much as possible, avoid exceeding the level of 80%. This will present you as a credit-hungry person and will be interpreted as a red flag by a lender.
Take Care of Credit Mix: Secured loans such as home loans or auto loans are considered much safer than unsecured loans such as personal, business and education loans. To achieve a good credit score, you need to maintain a credit mix that balances risk and return. It helps convince financial institutions of your ability to repay the loan.
Don't Apply for Loans Frequently: Every time you apply for a loan, it results in a credit inquiry by the lending institution. Too many credit inquiries negatively impact your credit score. That's why you must apply for credit when you need to do so. Otherwise, avoid it.
To conclude, a good credit score enhances your chances of getting a loan or credit card and can lead to lower interest rates as well. It gives you negotiating power and makes you a more desirable borrower from a lender's perspective.
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