What is a Credit Score and How to Check It?
A credit score represents an individual’s creditworthiness based on past financial behaviour. It is an essential tool used by lenders, banks, and other financial institutions to determine a borrower’s risk level and decide whether or not to approve their loan or credit application. The lender checks the credit score before approving the loan application because it shows the person’s repayment capacity.
Credit scores typically range from 300 to 850, with higher scores indicating a lower risk of defaulting on credit obligations. If you consider the most commonly used website for credit scores then it is the FICO score, which is based on several factors such as payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. Anything below 300 is not considered a good credit score, and the loan application is rejected. It would help if you had a good CIBIL score to get the approval and pay your dues on time to maintain a good payment history.
Payment history is the most essential factor in determining a credit score. It considers whether a borrower has made their payments on time and any missed or late payments. Credit utilization, or the amount of credit used compared to the total credit available, is another significant factor in calculating a credit score. Keeping credit utilization low, below 30% of the available credit limit, can help improve credit scores.
The length of credit history is also an important factor in determining a credit score. The longer a borrower has a credit history, the better it is for their score. Types of credit used, such as credit cards, loans, and mortgages, also impact the credit score. Having a mix of different types of credit can positively affect the score.
Checking your credit score is an important step in maintaining good financial health. There are several ways to check your credit score, including:
Annual Credit Report:
You are entitled to one free credit report from each of the three major credit reporting agencies every 12 months. You can request your report at AnnualCreditReport.com. It will help you in getting a free credit report for the year.
Credit Monitoring Service:
Several credit monitoring services offer ongoing access to your credit score and report and alerts for any changes. Some popular credit monitoring services include Credit Karma, Credit Sesame, and IdentityForce. You can check your credit score using any of the websites which will help you find the results.
Credit Card or Bank:
Some credit card issuers and banks offer free credit scores as a benefit to their customers. Check with your bank or credit card issuer to see if they provide this service.
Conclusion:
Credit scores are crucial in determining an individual’s creditworthiness, which is essential when applying for loans, credit cards, or other financial products. Understanding the factors that affect your credit score and regularly checking your credit score can help you maintain good financial health and improve your chances of being approved for credit products with favourable terms and conditions.