Credit score, a 3-digit number ranging from 300 to 900, depicts your trustworthiness in relation to financial institutions. Simply speaking, your credit score says a lot about how well you handle your finances.
Your credit score is based on your credit history which includes factors like your payment history, how long you’ve been in the credit system, how much credit you’ve used, your credit mix, etc.
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A low credit score can strongly impact your eligibility of getting a loan or a new credit card which can quite troublesome in a time of emergency. But apart from this, there are ways in which a low credit score (generally below 650) can impact your daily life.
What areas of my daily life can get affected by a low credit score?
- Loan and/or credit card approval
If you have a low credit score, lenders may turn down your application since a low/poor credit score is a mark of low creditworthiness. Any default or delay in the loan repayments gets recorded in the credit report of the applicant, which gets tracked by lending companies before any loan/credit card approval. On checking these reports with low credit score, lenders can get apprehensive in granting a loan or credit card to such applicants.
- Higher loan rates – lower benefits
A low credit score will most likely dent your credit application in a way that it will either get rejected or be approved at higher interest rates.
Effects of a low credit score are very easy to perceive. Maybe it won’t affect you immediately but there may be a dent in the future. Therefore, keep checking your credit score on a monthly basis or once in a quarter and save any ill-effects well in time.
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- Renting a house
When renting a property, many times renters inquire about your credit history to check your handling of credit as well as your financial stability. If you’ve been paying your loan EMIs and/or credit card bills in time, this will eventually pull up your credit score. And the same will have a positive impact on your rental agreement.
Apart from these, a low credit score may hamper your employment options as a prospective employer may ask you for your credit history to ascertain how well you handle your finances. And if you’ve not been careful with your credit, it will show in your credit history.
However, please note that without your assistance/consent, no employer can pull your credit score.
Tips to Improve Credit Score
As quick as it is to dampen one’s credit score, it takes significant time to rectify the same. Try the below-mentioned tips and your credit score should improve surely:
- Maintaining good repayment history
- Paying bills on time and in full
- Maintaining a low credit utilization ratio (30%-40%)
- Avoiding multiple or frequent loan/credit card applications
- Opt for unsecured loans, not secured loans
- Do not apply for fresh credit
- Avoid closing older accounts
- Avoid showing credit hungry behaviour
- Keeping a regular check on the credit report
Improvement in credit score takes time and does not happen overnight. Therefore if your score is very low, say below 600-500, it will take ample time to be pulled up. In the meantime, lenders will most likely refrain from giving you a fresh credit and this will directly impact your financial requirements.
However, by maintaining regular repayment history, the borrower can gradually repair his/her bad credit score. Knowing the fact that it’s a long-term process, customers should not default in repaying any loan EMI or delay in credit card repayments.
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