A good credit score is the most curious topic to discuss when choosing to take a loan. Every borrower applying for a loan asks these questions from ages. What is a credit score? Or what is a good credit score? Right.
Banks offer loans; in return, they would want to judge your ability of credit worthiness. To keep a check on your credit, They maintain credit reports. Information provided in credit reports is used to estimate credit scores, and hence it is essential to maintain positive credit reports. Credit scores mostly range from 300 to 900.
Credit scores are calculated based on your credit history, payment history, The number of dues you have and the number of times you have failed to pay.
It is essential to have a good credit score. It will avail you loans for lesser interest rates, easy approval of loans, speedy verification process. Borrowers with high credit scores are considered excellent candidates for lending loans, and borrowers with low credit scores are considered riskier candidates to lend loans.
Two types of credit scores models:
The credit score models indicate the personal financial condition and ability to repay an individual. The two main credit score models generated by bureaus:
- FICO Score model
- Vantage Score model
The FICO score model was designed and developed first by the fair ISAAC corporation in 1899. As the final indignity to offer credit, 90% of financial lenders utilize the FICO score. FICO score range lies from 300 to 850. Getting a score above 750 is known as excellence in the score; it will prevail over your loan with the lowest interest rate.
FICO credit score model–
- score range 800 to 850 – exceptional credit ratings
- 740 to 799 – excellent credit ratings
- 670 to 739 – good credit ratings
- 580 to 669 – fair credit ratings
- 300 to 579 – poor credit ratings
In collaboration, the vantage score model – Three major Indian bureaus, TransUnion, Experian, and Equifax, developed the vantage score model. The vantage score model was designed as a second possibility to the FICO score model. 3.0 and 4.0 are the newest versions, and their range is 300 to 850, similar to the FICO score model. Both score models, FICO and vantage score models, bring weightage to the one-time payments. Vantage score adds value to factors like utilization of ratio of credit and credit balance etc.
Vantage credit score model –
- Score range 781 to 850 – excellent credit ratings
- 661 to 780 – Good credit range
- 601 to 660 – fair credit range
- 500 to 600 – poor credit range
- 300 to 449 – inferior credit range
Some of the primary ways to improve credit score:
- Monthly payment before the due date of debts and loans is essential.
- Avoid late payments of credit and use the spontaneous arrival of the new card.
- Payment of overdue bills is mandatory; It is essential to be self-conscious.
- Can be in open line communication for payments while in financial cash crunch with creditors.
- Be aware of types of utilizing credit cards.
- One way to limit your credit amount options is by limiting the number of applications for credit cards. Don’t spend and exceed the amount of credit while trying to gain a credit score is the wisest move.
There are ranges of credit scores, and let’s discuss their pros and cons. For gist, the capacity of the upper limit in the scale is 350 – 649, and the lower limit in the ranking is 650 – 900.
- The account has no Bank account.
- The account has no history of payment
Range: 350 to 549
- The accountant’s range of credit score is considered poor.
- It implies you have a horrible payment history and failed to pay credit in the past.
- It will be difficult for you to qualify to get a loan.
Range: 550 to 649
- The account’s range of scores is adequate.
- It implies you have late payments of your credits in the past.
- Interest rate on your loan will be very high if your score is in this range.
Range: 650 to 749
- The account range of credit score is good.
- It implies your payments are on time
- The interest rates will be fair for this score range.
Range: 750 to 900
- The account range of credit score is excellent.
- It means you repaid all your credits on time.
- You’ll be charged the lowest rate of interest.
- Your loan will be processed and verified quicker.
Importance and role of credit score:
Business ventures, purchases, and consumers alike rely highly on credit nowadays. The whole idea of the availability of the credit system, the period of accepting an offer, is entirely reliable on credit scores. Having high credit scores is compulsory to avail of loans exclusively for the concerned individual.
The importance of a credit score is not only to get loans, but it also helps get additional insurance options and showcases your ability, and upholds your reputation as a responsible person in the eyes of potential employers.
Roles– when you need to apply for a loan, the first thing the lender or issuer checks is your credit score. while availing of a mortgage, car, or loan lenders use this process. Credit scores and credit reports are the standards that allow a financial institution to consider your worthiness for paying debts in the appropriate period.
The credit score’s vital importance is in the risk evaluation of an individual or an asset of your own. Individual needs to improve their credit score from the lower range. A person with a low score will be charged a high-interest rate compared to a person who has a high credit score. Thus, the lower the score, the higher the interest rate charged with a higher monthly payment. Financial entities and banks can also utilize other internal marking mechanisms to achieve the creditworthiness of a person.
You would have realized the importance and essentials of a good credit score and how a loan gets approval using borrowers’ reports. Credit scores are essential to get the approval of loans, and they determine accurate and reliable scores to check their worthiness. It manages all the information about the borrower. It is beneficial for both parties to have good credit scores to build trust. You can get free credit reports via agency applications and banks’ online websites. The best site to check your score is the Buddy Score website. Buddy Loan websites have got the best personal loan deals. There are many of the best places to check credit scores.