What is credit score
If you want to take a loan from a bank or any financial institution then credit score is going to help. This is a type score or rating which is provided by the financial institutes from you had once taken a loan.
Understand with an example– suppose you had taken a loan of Rs. 25,000 from a bank. The monthly installment is Rs. 500. You are paying this installment on time and able to clear the loan within the time provided by the bank. This will maintain your good track record regarding loans from the bank. This good track record will boost your credit score. If you have a good score then it will help you to take a loan again. For the next time, the credit score not only helps you to get loan easily but also help to minimize the interest rate. So we can conclude that the credit score is very good for those who want to take loans.
Difference between credit score and credit report
They are not independent of each other. The credit score will be made from the credit report. The report made by the bank regarding the loan repayment is called a credit score. So, if you have a good report of the repayment of credit then it will boost your credit score. So from this, we can say that both are dependent on each other.
Role of FICO in credit score
FICO stands for Fair Isaac Corporation. This is an analytics company. This makes the data of credit score by seeing your credit report. It has human and artificial intelligence to make an analysis of the credit score from the credit report. A healthy credit report will help you to make a good score. FICO is not the only company for this. Many other companies are also available for this. But, FICO is the most widespread and works all around the world. FICO is the most trusted and highly recommended company in this field.
CIBIL score and credit score
It is made in 3 digit numerical data. It ranges from 300 to 900. The Credit Rating will be closer to 900 will come under the best category. CIBIL score is made from the credit report and helps to maintain a good score.
Ranges of credit score
As it is discussed that it is a numeric data system. So there must be some numeric value according to which the score is divided and preference is given.
If your score lies among
- 800-900 – This is exceptional. The chance of loan approval is superb.
- 740 – 799 – This falls under the category of very good. The approval chance is very good.
- 670 – 739 – This will be considered as a good score.
- 580 – 669 – This is a fair score according to your performance.
- Below 580 – the score is poor. You will have to suffer to take a loan.
This is the range now according to it you can make analysis according to your score. Americans are the best in this rating. They have an average of 700 points. Many credit card companies provide access to check your data for free otherwise you have to pay some price to see your score.
Parameters used in making the credit
It is known to everybody that while making any score or data you need some of the rules and ways to make. In the same way, some parameters are available to make this.
Paying the bills on time– If you are paying the bills or EMIs on time then it will give a superb benefit.
Payment history– If you have a good payment history then it will contribute 35% of the data. Paying your bills on time will be a good thing to do.
Credit utilization – This depends on your credit utilization. Try to use minimum credit in the time period. Many experts suggest not using more than 30% of the total available credit.
Credit history – If you have a long credit history then it will benefit you to make a high score. But repayment on time is very important.
Different types of loans – If you have taken more than one type of loan then it will be also helpful. Loans like personal loans, mortgage loans, education loans, etc.
New loans– If you had taken a new loan and also have a good repayment history then it will also help you to boost the credit score.