What is a Credit Score?
A credit score is a number in which a financial position is evaluated based on the borrower's past credit history. The FICO scoring system is used by many financial institutions and lenders to know whether a person can be considered reliable for lending or not. It is also commonly called a three-digit number. Credit scores define how capable a borrower is in history to repay his loan.
How Borrowers Can Improve Credit Score?
• Pay Bills on time: When lenders review credit reports, they are very interested in how the borrower who has taken the loan has paid his bills. This is because past payment performance is generally considered a good predictor of future performance. Paying payments in a timely manner is the only way to prevent past outstanding payments from affecting your credit score.
• Apply for new credit account only when required: Never open accounts for better credit mix. This is not the right choice to improve your credit score! Unnecessary credit sources can damage a credit score in many ways, from making difficult inquiries on a borrower's credit report to maintaining their care and depositing debt.
• Pay off all remaining Debt and Keep Balances Low on Credit card: The ratio of credit card usage is a significant number. The less you use it, the more you will be able to actively increase your credit score, if you use them less than the lender feels that you do not maximize the use of your credit card and you spend all your expenses. How to manage it well.
• Don’t close old unused credit cards: Keeping a credit card open can prevent your credit score from deteriorating by maintaining your credit score. This is a smart strategy, as closing these types of accounts can increase your credit utilization ratio. Having fewer open accounts can lower your credit score.
What is the highest credit score a person can get?
According to the fico score rating, the highest credit score person can get is 850. The people involved in this issue are involved in high-debt management, FICO has a standard credit range of 300-850. This category leads many to believe that they may need the right credit rating to get the best rates on lending products.
Here is an overview of the FICO credit scoring model:
• Poor: 300-579
• Fair: 580-699
• Good: 670-739
• Very good: 740-799
• Exceptional: 800-850
How FICO score calculated?
The FICO score is usually calculated using five different categories. Each category is given different importance that affects your credit rating:
• The history of payment counts for 35% of the credit score, and the payments show whether the borrower pays their lending fund on time or not.
• The total funds taken by a borrower is also considered for 30%
• The length of the credit history is counts for 15% and the options used to increase the credit score are counted for 10% for example installment loans, personal loans, etc.
• The new type of credit counts for 10% shows how many new types of accounts a person has recently applied.
Why a credit score is important to get loans?
Credit scores are an integral part of borrower's financial lives. Your credit score is a number used by lenders, creditors, banks to evaluate how well you’ve been managing your debt. If a borrower has a high credit score, the lender will assume that he or they has a lower risk of default on the loan. If your credit score is low and you do not know how to pay your bills on time, then your credit history also works. Loan options are also limited. Due to a low credit score, the lender can see you as a risk.
End Line: It is not necessary to have an 850 credit score, but it is compulsory to keep score up to 740 So that you can qualify for the best rates and have to pay less money in interest over the life of the loan. If your credit score is low, then there is nothing to worry about. With the above simple methods, you can start improving your credit score immediately.
