Our credit score plays a very important role in our life, it really helps us get a loan or credit card with low-interest rates which saves you a lot of money for the whole tenure period.
What is a credit score?
Let us understand the credit score and how important is that for taking a loan.
The credit score is the metric used by the lenders to measure your credit health. Borrowers with high credit scores will have less credit risk and can have a broader selection of credit products at low-interest rates. A credit score is a number that tells a person’s creditworthiness which is based on a variety of personal financial data.
The borrower's credit score can change frequently on the basis of payment of the loans, credit cards or have taken new loans
. So, the score is not constant and can change regularly, which the borrower can track down by signing up to various credit reporting services.
What are the factors affecting the credit score?
1. Defaulting a payment: When the borrower misses a payment or does a late payment then there are chances of credit score getting low. It all depends on how late or how much amount is still yet to pay. Avail the loan and make the payment on time will not affect the score.
2. Credit history period: A long credit history period is helpful unless and until the borrower has not made any late payments and short history period is also considered unless the borrower doesn’t owe too much.
3. Credit utilization: The borrower utilization of credit affects the credit score. If the borrower does high credit utilization, then it indicates a high repayment burden and affects the credit score negatively.
How to improve the credit score?
Your credit score can be improved with just a few tips. You can easily maintain the credit score high or can improve the score by following the mentioned tips.
1. Get credit: You need to apply for credit in order to improve the score. Without credit, there is no credit history. You just have to be smart at paying the amount on time and maintaining the credit score.
2. Don’t go beyond credit limit: If you use your credit limit to the fullest, then you are responsible for the credit score to drop down, it might also affect negatively.
3. Pay on time: You should make the payments on time so that your score is improved on a timely basis. If you default the payment, then that will affect your credit score which will not let you take any further loans or credits.
4. Do not take new credits: When you are already paying enough debts, then you should avoid taking new credits as it indicates a hunger for credit. You can take the extra credit only when you have the confidence of paying the interest rates on time and paying off the loan amount in the tenure period.
5. Correct your credit errors: You need to have a tab on your expenses or on your credit report so that you can identify the errors in the early stage and rectify them immediately.
We hope you have understood what a credit score is and how to improve it with effective tips. Your credit report is updated on a timely basis based on your credit behaviour and the information that you give to the financial firms. If you focus mainly on the mentioned factors, then you could improve your credit score.