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These days, it is very easy to apply for loans and get approvals quickly. In fact, you can apply for them online as well. However, although applications may be conducted conveniently, getting approval for loans and other financial products like credit cards may prove a challenge for some. This is because some applicants may not have creditworthiness or a healthy credit score. This decreases your chances of availing certain financial products or services. What exactly is a credit score? This is something you should know about before you jump in to learn why it is important and how you can boost credit score.
A credit score is a 3-digit number in a range from 300-900 that determines your creditworthiness, in other words, the health of your credit. A credit report may be generated for each individual and this has your credit score and other information about your credit history. Simply put, it is the information about you in terms of your financial health. You could say that your credit score indicates your level of trustworthiness when it comes to borrowing capital.
As mentioned earlier, your credit score appears in a range, and the higher it is, the better your credit score and your creditworthiness is. For instance, if your credit score is between 850-900, it means your score is high and as a borrower, you have no outstanding debt and pose a low risk to a lender. Any score ranging from 750-850 means that you have a good score and have no defaults in payments. This is a score that is acceptable when you apply for a credit card or a loan. A score that lies between 650-750 typically indicates a fair credit score. Any score falling lower than this indicates that, as a borrower, you pose more of a risk in terms of credit and the repayment of loans. A low credit score also means that you may not be able to get certain benefits like high cash limits on cards and optimal interest rates on loans.
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In India, credit reports and corresponding credit scores are released by four authorised credit bureaus, each of which is regulated by the Reserve Bank of India:
Credit scores and reports generated by these entities lead to efficiency in lending, promote transparency, and contribute to a sound credit ecosystem.
Additional Read: Why Financial Literacy is Important?
Credit scores are the result of your credit history. What are the factors in your credit history that determine your credit score? These are outlined below:
Here are the reasons why a credit score is important:
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Here are some tips to maintain or boost your credit score:
It is vital that you keep track of your credit score regularly. You can do this via the website of your bank or credit card, or the websites of any of the credit bureaus. You are entitled to obtain a free credit report once a year. There are certain credit monitoring services that also help you in obtaining your credit report so you are kept informed of your credit score.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only.
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