Learn the various types of Credit Score

Lenders offer personal loans with no collateral. This means that there is a high risk. Lenders will often check your credit score before approval of your loan application. This is because it indicates your credit behavior. A credit score is important when applying for a personal loan.

This article will explain what a credit score and which types it is.

What is a credit score?

Credit score is a number of three digits that indicates creditworthiness. It can range from 300 to 900, with 300 being the highest and 300 the lowest. A credit score of 750 or higher indicates that you have a strong credit history and are able to repay your debts on a timely basis. You have a higher chance of getting your loan at lower interest rates. If you have poor credit, lenders may charge high-interest rates. Buddy Loan can instantly give you your complete credit report.

Four credit information companies, called credit bureaus, have been licensed by the Reserve Bank of India (RBI). Credit bureaus are responsible for collecting, collating, and aggregating information about an individual's credit history, creditworthiness, and other financial information. They include:

1. CIBIL (TransUnion Credit Information Bureau (India) Limited) 2. CRIF Highmark

3. Experian

4. Equifax

Credit Score

Banks and NBFIs often use two types of credit score models: 1. FICO Score

2. Vantage Score

These credit score models are used to assess an individual's financial stability as well as their repayment history. This is a detailed overview of each model.

What is a FICO score?

Fair Isaac Corporation created the FICO score back in 1989. 90% of lenders use FICO scores when making lending decisions. The FICO score is a three-digit number that ranges between 300 and 850. A personal loan with lower interest rates can be obtained if you have a credit score of at least 750.

Below is a table that shows FICO's credit rating and range.

CREDIT SCORE

CREDIT RATE

781 to 850

Excellent

661 to 780

Good

601 to660

Fair

500 to 600

Poor

300 to 499

Very poor

Below is a table showing how FICO calculates credit scores

Percentage (%)

Credit Factors

35 percent

History of payments

30%

Summaries owed

15%

Credit history length

10%

Credit mix

10%

Credit new

What is VantageScore?

In collaboration with the three largest credit bureaus (i.e. In 2006, Equifax, Experian, and TransUnion developed the VantageScore model. It was designed to be an alternative to FICO scores.

The VantageScore 3.0 and 4.0 have the same range of values as the FICO score (300 - 850). While VantageScore and FICO scores emphasize payment history, VantageScore places more emphasis on other factors like credit card balances and credit utilisation.

Below is a table that shows VantageScore's credit rating and range.

CREDIT SCORE

CREDIT RATE

781 to 850

Excellent

661 to 780

Good

601 to660

Fair

500 to 600

Poor

300 to 499

Very poor

Below is a table showing how VantageScore calculates credit scores

Influence

Credit Factors

Highly influential

Credit usage, available credit and balance

Influential

Credit mix and experience

Moderately influential

History of payments

Influential but less

Credit history age

Influential but less

New accounts

Factors that can impact your credit score

These are some common factors that can affect credit scores:

1. Your payment history: This is an important part of your credit score, and it accounts for 35% to your FICO score. Your credit score will be affected if you don't pay your bills on time. Lenders will also check your payment history in order to verify that you will pay your debts on the due date.
2. Credit utilization ratio: The credit utilisation rate is the sum of the amount due and your credit limit. Your credit score will drop if you exceed your credit limit. Lenders will be less confident in your ability to pay your debts on schedule. Keep your credit usage below 30% of your income.
3. Multiple credit inquiries can harm your credit score. Each time you inquire, the lender runs multiple background checks. This creates an impression that you may not be able to repay your debts on time. It is responsible for 10% of your FICO score.
4. Credit history length: Lenders will review your credit history to determine your credit behavior. Your credit score will be higher if you have a positive credit history. Your FICO score is 15% also influenced by credit.
5. Credit mix: Having a variety of credit options, including student loans, car loans and credit cards, can increase your credit score. This indicates your ability to manage multiple credit accounts. It is responsible for 10% of your FICO score.

Credit Score Reduction

These are some of the most common actions that can lower your credit score.

1. Late payments or missing payments could negatively impact your credit score.
2. Too much credit: Use of credit beyond 30% can reduce your credit score.
3. Account defaults: Foreclosing, bankruptcy, settled accounts and other actions that can negatively impact your credit score, such as closing your account or making a foreclosure, could severely damage your credit score.

Tips to Improve Your Credit Score

Even if your credit score is perfect, it can make it difficult to get a loan for medical reasons. Here are some ways to improve your credit score and leverage your creditworthiness.

1. Make sure you pay your bills on time. You can either set reminders or make a habit of paying them on time.
2. Pay off your past debts If you are still owing past dues, it is time to start paying them. This will increase your credit score.
3. Check your credit reports: Once a year, review your credit reports so you can correct any errors. You can quickly check your credit reports using Buddy Score.
4. Maintaining an adequate credit card balance: Keep your credit card balance under your credit limit. Don't exceed 40% credit usage.
5. Keep your old credit accounts open This will increase your credit score.

Summarising

When applying for a personal loan, check credit score are important. A good credit rating will help you get a loan with lower interest rates. It is important to remember that there are many factors that could affect your creditworthiness. It is important to check your credit report at least once per year. To assess your creditworthiness, you can also instantly access your credit report using Buddy Score.

People also ask

1. What are the Indian credit bureaus?

Four credit bureaus were licensed by the RBI of India: CIBIL (Equifax), CRIF, CRIF, and Experian.

2. What does a credit bureau do?

Credit bureaus compile, aggregate, and combine information about your credit history and the repayment history of individuals.

1. How does taking multiple personal loans impact my credit score? Multiple personal loans can lead to credit scores reductions.
2. Where can I instantly check my credit score?

To assess your creditworthiness, you can instantly check your credit score using Buddy Score.

5. How do I improve my credit score easily?

Pay your bills on time, check your credit report once a year, and avoid multiple inquiries.

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