Your credit score is one of your most important number crunchers when it comes to applying for a credit card. A high-quality score will help you get approved for new credit.
On the other hand, a low-quality score can make you more likely to be turned down and cause further problems with your credit history in the future. What’s more, filling out your credit card application may be the first time you’re checking your score. So, how will a low score impact other parts of your life? First, let us look at how your credit score works and what you can do to improve it.
What is a Credit Score?
Your credit score is a three-digit number summarising your ability to repay the credit. A credit score is how lenders evaluate your creditworthiness, which greatly impacts the kinds of credit lines you receive. Generally, a higher credit score will make you more likely to be approved for new credit. Several things go into your credit score, including how much debt you carry, your payment history, and the type of credit you have. Your credit score is a number between 300 and 900, with a higher number indicating that you are a more creditworthy person. This can greatly impact your ability to take loans at a lower interest rate and flexible repayment tenure.
How Does a Credit Score Work?
In India, your credit score ranges from 300 to 900. It is calculated by credit rating agencies which have your past financial history. Whenever you make a purchase, make an inquiry or take a loan, the bank shares the information with the credit bureau. The most common type of credit score is the one calculated by CIBIL, a credit rating agency in India.
Factors That Go Into Your Credit Score
Your credit score is calculated using your payment history, age of credit, credit exposure and types of accounts that you have.
What Is A Good Credit Score?
A score between 750-900 is considered excellent, whereas anything between 650-749 is considered good. Anything below, and you lose out on purchasing power.
The Importance Of Having A Good Credit Score
High credit scores can have a major impact on your financial future. Whether you want to buy a house or take out a loan to start a business, the credit line will depend solely on your credit score. This applies to credit cards, home loans, and other types of financial products as well. If you are turned down for any of these types of accounts, it could be a major setback. This is why it’s crucial to have a high credit score.
What Can Help Raise Your Credit Score?
- Pay Your Bills On Time: As stated earlier, your payment history accounts for 35% to 40% of your credit score. Timely repayments can help ensure that you don’t receive any late payment remarks.
- Keep Your Balance Low: Your overall debt is also considered a significant factor in your credit score. You need to keep it as low as possible, ideally below 30% of your credit score. This means you should only use approved credit cards to make purchases and pay off your full monthly balance.
What Is Bnpl?
BNPL stands for Buy Now Pay Later. It is a scheme where you can get instant credit, much like a credit card, without the hassle of interest rates. Perhaps its greatest feature is that there is no credit score checking when you avail of one of these services. Instead, you are given a starting credit limit, which increases based on your usage and repayment habits. Companies like LazyPay are pioneering this model of instant credit to empower more consumers than ever before.
Digital Cards As An Alternative
Due to the absence of any credit score check, digital cards like the Lazy Card by LazyPay are increasingly becoming popular. They are hassle-free new age alternatives to the traditional systems of borrowing money. If your credit score is below par and your financial situation has improved, yet you cannot borrow, these cards can be a welcome addition to your purchasing power. The lack of any major interest and no hidden fees make them an even more lucrative option.
A good credit score is crucial when it comes to your ability to borrow money. A poor credit score can deny you valuable financial assistance or make it expensive. It is imperative to keep monitoring your credit score and keeping it in check; many websites online provide it for free. Just make sure you follow all best practices regarding your finances so that when the time comes, you can seek help.