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Understanding the role and importance of credit score

Credit Score

Understanding the role and importance of credit score

Credit Score

Understand the role of credit score in your credit request approvals. Learn the best ways to improve your score to qualify for low-interest loans. Read more!

Role and Importance of Credit Score

Consumers, purchasers and business ventures alike are highly dependent on credit in the present day. The entire system of the availability of credit, the time period of the acceptance of an offer is dependent on your credit score. Having an excellent credit score is a must for the availability of loans and credit for the purchase of something exclusive and bespoke.

However, the importance of credit score is not merely restricted to those who seek credit. It can also help you get more attractive insurance options, and can even present a more responsible image of you in the eyes of prospective employers.

Let us learn more about the various concepts related to credit score and the benefits of maintaining a high credit score.

Credit – Definition

In a nutshell, a ‘credit’ is basically the practice of borrowing money, be it for a purchase or as a loan with the promise of paying off the debt within a stipulated amount of time. The failure to do that adds on to the overdue sum a certain amount of interest. Defaulting on a regular basis on the payment of overdue bills and debts leads to a low credit score. A low credit score hampers your purchasing power for future credits and availability of loans.

Credit Score – Definitions and Players

The credit score is a statistical method to ascertain the likelihood of an individual paying back the money owed by him/her. There are a number of credit bureaus that evaluate your personal report and send you the score. Every organisation has different evaluation systems, and the calculation is based on a wide variety of factors.

There are three major international credit score bureaus out that evaluate credit scores for an individual.  Equifax, Experian, and TransUnion are the top three organizations offering their services for the evaluation of credit scores. CIBIL (Credit Information Bureau Limited, India) is India’s first Credit Information Company and was established in the year 2000 and is affiliated to the TransUnion based in the U.S. However, it is interesting to note that since the evaluation process is different for the three organisations, credit score from each for the same individual might differ even though it will be based on the same information.

Role of Credit Score

Whenever you apply for credit, your credit score is perhaps the first thing which is checked by the credit issuer. The process is the same when you are applying for a card, a loan or a mortgage. Credit reports and credit scores are markers that allow a financial institution to check your reliability for paying off the debt on time. The major importance of the credit score is thus in the risk assessment of the individual or the asset – in this case, you! You need to improve your credit score if it is on the lower side. This is because of the fact that you won’t be shunned outright if you do not fit the high standards, but the credit you get will be laced with a high interest rate than compared to someone who has a better credit score. Thus, the lower the credit score, the higher is the rate of interest, which eventually results in a higher monthly payment.

In addition to credit scores, banks & other financial entities may also use other internal scoring mechanisms to establish the credit worthiness of an individual

Good Credit Score Advantages

The importance of credit score can only be stressed on by pointing out the advantages of having a good credit score. That dream business venture which requires a loan, the destination wedding, student loans and various expenses that might crop up on you unnoticed can be dealt with credit purchases. Having a good credit score will help you in getting the grants without much of a hassle, since you will be assessed to be of lower risk. More importantly, you will be asked to pay off your debt at lower interest rates. Take the necessary steps to improve your credit score today to avail the best personal loans by Standard Chartered!

Components of Credit Score

In order to improve or maintain a good credit score it is very important to know the various components of credit score. It is only when you know the potential areas of improvement that you will be able to devise a plan to achieve a better credit score. The following are the main factors of evaluation for credit scores:

  • Credit payment history of the individual
  • The current debts of the individual
  • Duration of time of credit history
  • Credit mix
  • Frequency of applications of new credits

How to Improve Credit Score?

The following are some of the basic ways to improve your credit score:

  • Monthly loan and debt repayment on time before the due date
  • Avoiding extension of credit and not using unsolicited new card arrivals
  • Self-caution goes a long way; so it’s a strict no on ignoring overdue bills
  • Keep an open line of communication and arrange for repayment arrangements when experiencing financial difficulty with the creditor
  • Being aware of the type of credit card in use
  • Limiting the number of credit card applications is a sure-shot way of never extending your credit amount; not going over the top while spending is the wisest of decisions one can take while trying to improve credit score.

Hampering Credit Score

Credit is a fragile thing, and the report has value only when significant data is collected over a period of time. The longer a credit history, the better chances of the result being accurate. So provide the creditors with a long credit history. Schedule regular payment before due dates. Only with good practice and discipline can you enjoy the advantages of a credit score.

The importance of credit score in the modern world cannot be stressed enough. What steps have you taken to improve your existing score? Start today. View the credit cards and loans options offered via Standard Chartered.

Disclaimer

The views expressed in the article are those of Standard Chartered Bank (“SCB”) and do not constitute financial, professional or other advice. SCB, including its Directors, Officers or Employees shall not in any event be liable for any damages or injury arising merely from your reliance on any information provided here. Each bank / financial institution will have its own processes/ fees/ charges and any information contained in this Article is only indicative. Before placing any reliance on any information contained or views expressed in this Article, we would request you take all steps necessary to verify the correctness thereof. The information contained in this Article is only indicative. Each Standard Chartered Bank Product has its own terms & conditions and should be referred to in entirety. We request you to kindly visit “sc.com/in” or visit your nearest Standard Chartered Bank Branch or call on our Customer Care numbers for more details.