Are you still unsure about what are your credit score means? Are you wondering why your score is slightly on the lower side in spite of making regular payments? Let’s debunk the score system of credit and check what it actually means. A credit score implies your past credit history and how have you managed your finances. Based on your credit score it is decided if you are applicable for future loans/credit cards or not.
How to know if your score is good or poor?
The credit score scale ranges between 300 to 900. 300 being the lowest in the scale and 900 being the highest. The ideal score is above 720 while any score below 650 is not good.
Moreover, if you are score ranges between 300 to 550, it is a wake-up call for you because your score is very poor, and you have to do better financial planning. If your score ranges between this, it also implies that you have missed your payments on multiple occasions, and you have a history of irregular payments.
What factors reduce your score?
The possible reasons for your credit score getting affected are:
- Your debt is too big and you are facing difficulties in paying it off
- Checking your score too frequently also plummets your score as you appear desperate in front of the lender’s eyes.
- After using the credit card to its maximum limit and paying only the minimum amount takes a major hit on the score.
- Untimely and missed payments cause a huge impact on your score. You can set reminders for your payment or ask your bank to auto-debit the payment towards the repayment.
How to detect the reasons for a score a below 550?
The above-mentioned reasons may not be applicable to you, if you have just started building your credit history. When a person just starts creating their credit portfolio, it takes time to build a credit history and it depends on the person’s age too.
You can closely monitor your credit score by checking your expending and repayment patterns. Closely monitoring your financial behaviour and understanding what can be worked on.
Let’s check out a huge Credit Score myth that needs to be debunked
Checking your score to often can impact your score, well that is not entirely true. There are two types of credit score inquiry – hard and soft.
Hard Inquiry is when you apply for a credit card and the lender checks your score. One hard inquiry stays on your history for 12 months. Therefore, if there are multiple hard inquiries, you may appear desperate to the lenders and your score will come down.
Soft Inquiry is when you check your score. Checking your own score does not affect anything and it is good to know where you are heading.
Also read how credit monitoring works only at Finserv MARKETS
Other things can you do for your Credit Score
It is crucial that you go through your credit score closely. It is possible that a debt that you may have paid off could be shown as active. In such cases, you raise your concern and get it corrected. Checking your report routinely is good to learn about the discrepancies in the report, if any. This way you be alert and not let your score get affected.
Now that we’ve armed you with this information. We are sure you will be better prepared to handle your EMIs.
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