CREDIT SCORE AND FINANCIAL HEALTH

What is a credit score?

A credit score is a measure of a person's reliability in repaying debts and loans based on a person's credit history and financial health. This three-digit number or index indicates the eligibility and creditworthiness of an individual to a lender, be it a bank or a non-banking financial company (NBFC).

A good credit score is between 700 and 900, which indicates that the borrower has a better and better chance of getting credit from the lender.

To reduce default risk, traditional and new lenders, mortgage companies, credit card companies, etc. actively check a borrower's credit score history before determining the appropriate loan amount and interest rate to charge. It varies from borrower to borrower.

A high credit score (750-900) indicates that the borrower is less likely to default on credit obligations, while a low credit score (below 300) increases the risk and vulnerability of the loan money.

How Credit Scores Effect Financial Health:

Your credit score is a measure of your financial health for those who want a better understanding of how responsible you are for your financial obligations.

Loan Qualification: This is the most common use of credit scores. Lenders check your credit score to determine if you qualify for a loan.

The higher the loan amount, the more difficult the conditions: A low credit score may prevent you from buying a home, car or getting a personal loan.

Loan Interest Rates Again, your credit score plays a big role in your financial reality: A higher score will get you a lower interest rate on your loan, but a lower score could mean paying thousands of dollars in extra interest over the life of the loan.

Recruitment: A study by the Society for Human Resource Management found that 47 percent of employers look at potential employees' credit scores as part of the hiring process. Don't let your credit score cost you your dream job.

Currently renting, many landlords screen new tenants before signing a lease: A low credit score may prevent you from finding your dream apartment or cause landlords to require a large deposit before you can move in.

Applicable insurance Most insurance companies will check your credit before agreeing to provide coverage: Consumer Reports writes that a lower score could mean you end up paying hundreds of dollars more for auto insurance coverage.

How to improve your credit score

If you're planning to take out a big loan in the near future, apply for a new job, rent a new place, or just want to improve your score, follow these steps.

Pay your bills on time: If you have income to cover it but have trouble getting paid on time, use automatic payments. Online bill pay is an easy way to manage your bills. You can schedule automatic and recurring payments.

Pay the minimum payment amount on your credit card: Your credit score takes into account your debt history. Paying more than the minimum amount on a credit card shows that you are working on paying down your debt and helps improve your credit score.

Pay your credit card bill on the due date: If possible, we recommend paying your credit card bill early. That way, more of your money goes toward paying off your outstanding balance instead of paying interest.

Check if there are any unpaid medical bills: You may have unpaid medical bills that you have forgotten about. Be sure to resolve any unpaid medical bills as soon as possible, as these can significantly lower your credit score.

Consider debt consolidation: If you are paying interest on several outstanding debts each month, you may benefit from paying them off with a new credit card that offers a lower interest rate or by taking out a personal loan. This way you only have to pay one low-interest payment each month.