A bad credit score is not just an indicator of poor financial health but also a reflection of how trustworthy and responsible a borrower is. Lenders usually look at this score to determine if a person is eligible for credit, the loan amount permitted and the rate of interest on borrowings.
A low score may put you on blacklist as a ‘credit risk holder’ and this will deny you a host of benefits like credit cards, loans, access to any form of credit, cash rewards on credit cards etc. You will also have to pay higher interest rates.
What is a Credit Score?
A credit score is a number usually ranging from 300 to 800 and is calculated based on personal financial data and spending behaviour. The higher the number, the better the credit score. An ideal/excellent credit score is anything from 700 and above. Any number ranging from 679 to 680 is a good score.
So what is a Bad Credit Score?
As a general norm, most lenders will not extend credit to those with a score less than 620. Scores that range from 500 to 579 are considered poor credit scores and scores that range from 300 to 499 are considered bad credit scores.
Below is a table that explains the breakdown of ranges for a bad credit score:
|Low credit score||580 to 619|
|Poor credit score||500 to 579|
|Bad credit score||300 to 499|
A bad credit score comes from not paying credit card bills on time, paying less than the monthly instalment, not paying loan EMIs on time, bad credit buying pattern, payment history, borrowing history etc. These factors will earn you negative points and jeopardise chances of a good and healthy financial future with access to easy credit at lower interest rates.
Even if credit is not denied to bad score holders, it will be much more expensive with higher interest rates. Insurance schemes and loans will get much pricier. There are, however, a number of measures that can be taken to improve credit score.
Here are a few :
- Keep your credit utilization ratio low and do not exceed the credit limit on your credit card.
- Keep your payment history clean and pay all bills on time, be it phone or utility.
- It pays to keep a regular watch on your spending behaviour and check your credit score regularly.
- Try to improve your credit score a few months before applying for any form of credit be it a car loan, personal or home loan etc
One cannot improve credit scores overnight. Good credit history takes a reasonable amount of time to build and it requires persistence. However, it is never too early to work on building the perfect credit score as this will benefit you in many ways in your financial future.
What is Good Score ?
A Credit Score of 750 and above is considered a good score. It’s not that you won’t get loans or Credit Cards with a lower score, but the terms might not be as favourable.
What’s The Benefit Of A Good Score?
A good Credit Score not only helps you get loans and Credit Cards easily, but may also help you get favourable terms like a low interest rate, long tenure, etc.
How Do I Get A Good Score?
Always pay your Credit Card bills and loan EMIs on time. A mix of secured and unsecured credit also goes towards building your Credit Score.
How Does It Help To Know My Score?
Checking your score regularly is a good financial practice. It’ll help you spot and rectify errors in your Credit Report that could hurt your score.It’s important to check your Credit Score, that’s why BankBazaar lets you check it for FREE.