The dependency on the credit card and their usage in day to day life has become essential. With the increase in the number of bank accounts, the sanctioning of the debit cards and credit cards has increased by a large number. Although anyone with a bank account can avail the debit card facility, same cannot be said for a credit card, as only selected few can get the credit card facility. The provision of this facility takes into account number of things including financial standing, transaction history, etc.
What is a Credit Score?
Usage of credit card comes with a promise that whatever amount you are borrowing will be repaid within a specific period of time. A credit score is a term related to stats which helps in understanding and determining whether a person will be able to pay the money back or not. These credit scores are derived from different evaluation systems which are based on different factors.
The credit score lies between 350 i.e. high risk and 850 i.e. low risk. Thus the higher the number the higher is your credit score and your standing with the bank. Similarly, lower the credit score the weaker your standing with your bank when it comes to seeking a loan and other features.
Furthermore, a scale from number 1-10 is used to evaluate the personal credit score which comes in two parts: Installment credit and Revolving Credit. Installment credit involves credit loans taken for housing, automobiles, etc whereas the revolving credit includes a normal credit card.
How is Credit Score Evaluated?
When you borrow a certain amount of money from your lenders, they provide the details to the credit bureau which helps them to calculate your credit score. Usually, through the reports provided by your lenders to the Credit Bureau helps them in the analysis and thus the determination of the credit score. Usually, there are few points which are taken into account when we talk about credit score:
- Performance of previous credit
- Time period & Validity
- Level of indebtedness as of now
- Availability of types of credit
- Request for a new credit card
- Advantages of a Good Credit Score
Credit score gives a fair idea to the lender such as banks and other institutions about the financial standing of a person. Thus having a good credit score can prove to be very beneficial for the credit card holder. There are various advantages of a good credit score. For instance, you lost your phone and you are willing to buy a better one urgently or say you like a 3 BHK apartment and have your sights set on it. With a strong financial standing which involves a good credit score, you can seek bank’s help in getting the funds from them. Various important tasks can be performed with a good credit score like applying for a student loan becomes easy, car loans, home loans as well as mortgages can be sought after easily with a help of good credit standing. There are many advantages of having a good credit score both in the long run as well as the short run. Thus it is essential to learn why good CIBIL scores are so important.
Credit Score Helps You in Seeking Better Interest Rate
Better financial standing with the bank means better trust and connection with the bank. This trust with the bank is fulfilled due to an individual’s ability to pay the amount that has been borrowed in a timely manner. The better your credit standing, the better rate of interest can be sought. It will help you apply for a personal loan and thus the repayment of borrowed amount is much more stressful since the bank assists you with a better interest rate.