7 Reasons You Should Be Aware Of Your Credit Score

A credit report and credit score are two important factors that are taken into consideration by banks and non-banking finance companies at the time of approving your loan and credit card application. It represents your creditworthiness and allows lenders to decide whether you have the ability to repay the debt or not.

What is a credit score?

A credit score represents your creditworthiness. It is a 3-digit number between 300-900 that offers a summary of your credit report and measures credit risk based on the information given in the credit report. It gives banks and non-banking finance companies (NBFC) an insight on your credit history and repayment behaviour. A credit score of 750 and above is generally considered ideal by lenders and increases your chances of getting a quick approval on your loan and credit card applications. A higher credit score also makes it easier for you to get better benefits and rewards on your credit card and also lower interest rates and discounts for loans.

Since your credit score is a measure of your creditworthiness, it is important that you check it from time-to-time. Let’s take a look at some of the top reasons as to why you should be aware of your credit score:

  1. Applying for a loan: If you are planning to take any type of loan – personal, car loan or housing loan, you must first check your credit score. Banks and NBFCs will decide interest rates for your loan after considering your credit score. If you have a credit score of 750 and above, you have better chances of getting a loan at a lower interest rate.
  2. Getting a new credit card: Good repayment behaviour helps you improve your credit score. Therefore, a higher credit score will increases your chances of getting a credit card with rewards, benefits and additional discounts. Once you check your credit score, you will get a better idea of what kind of a credit card you are eligible for.
  3. Know your financial health: When you check your credit score, you get to know about the current state of your financial health. Once you understand where you are going wrong with your spending and payment habits, you can take measures to work on them and work towards building a positive credit history.
  4. Improve your credit score: There are several simple steps through which you can maintain as well as improve your credit score. Let’s take a look at some of them:
    1. Pay bills on time: Make sure to pay all the bills and dues on time and avoid any type of delays in order to maintain a good credit score.
    2. Maintain low utilisation ratio: It is advised to not exhaust your entire credit limit and not spend over 50% of your credit card limit.
    3. Limit credit inquiries: Making enquiries for a loan or a credit card too often will bring down your credit score. Hence, it is important to apply for credit cards only if it is absolutely necessary.
    4. Pay all the dues: It is important to clear all your debts even if you are late at paying them.
    5. Don’t remove old accounts: Your old accounts could have a good and long credit history and deleting them will adversely affect your credit score.
    6. Always make full payments: Get into the habit of paying the entire bill amount. Do not pay minimum amount due on your bills as it will reflect badly on your credit score.

5. Look out for identity theft: If you have not checked your credit report for a long time, you might not know that you have become a victim of identity theft. The sooner you are able to spot a case of identity theft, the more likely you are to prevent extensive damage. Identity theft means that someone else is banking on your credit card. This means that someone else will use your credit report to get a loan or a credit card and then misuse the credit thereby taking a toll on your credit score. Therefore, it is important to check your credit card statement monthly and see for any unusual transactions.

6. Errors in your credit report: It is common to have errors in your credit report. There could be wrong information about your personal accounts and past payments hence it is important to check your credit score so you can spot these errors and dispute them to the respective credit bureau.

7. Building or rebuilding a credit: Once you know your credit score, you can work in the right direction to improve it. If your score is really poor, you have to take some serious measures to improve it. On the other hand, if your score is in the right range, you need to maintain it.

Where to check your credit score?

As per the Reserve Bank of India (RBI), it is mandatory for all the credit bureaus in the country to offer one free credit report in a calendar year. You can check it every month from a variety of websites like BankBazaar.com at no cost.