A credit score is a substantial value for getting a credit card or applying for a new loan. It is a three-digit number that shows your credibility. Usually, banks and lenders consider your credit score before approving your loan application. So you need to know your credit score to get instant approval on loans with low-interest rates. If you don’t have a good credit score, you will not be eligible for any loans. So it is better to check your credit score free and make it perfect.
There are many myths or misconceptions regarding credit scores that confuse the borrowers. Let’s have a look at how much truth there is. When you maintain a good credit score, you get the benefits such as a higher credit limit, lower interest rate, and higher chances for approval. And if your score is below 300, you have lower opportunities for getting loans with a low-interest rate. To avoid this, always maintain your score by sticking to a budget and paying your credits on time.
How does a credit score work?
A credit score is a three-digit numerical indication of a person’s financial health that is calculated using their credit history. The credit score vary from 300 to 900, depending on the individual’s credit history. The closer your credit score is to 900, the more likely you are to get approved for a loan or credit card. In other words, if you have a credit score of 750 or higher, you’ll have a better chance of getting a credit card or a loan.
When it comes to establishing the interest rate for loan applicants, many lenders use risk-based pricing. Borrowers who have a credit score of 750 or above pay a lower interest rate than those who have a lower credit score. As a result, individuals should strive to consistently raise/improve their scores, and those who do so should be rewarded.
A credit score is based on the individual’s credit, and those with high scores should take steps to maintain them.
Misconceptions about credit scores
Checking your credit score will cause a decline in the score.
A myth says checking your credit reports will lower your scores, which is not valid. You will be having only two types of inquiries over credit score; soft and hard. When you check your credit score, it is a soft inquiry that doesn’t hurt your score. But when banks have a query over your credit to check your eligibility, then it is a hard inquiry. Significantly, when you have a low credit score, it can affect your score.
A poor score lasts forever.
If you have a bad credit score, it doesn’t mean you can’t change it. You can say goodbye to your low score by maintaining your credit correctly and repaying your dues on time. Mostly a missed payment will be the reason for your low credit score. So you can rectify those missings and improve your score.
Credit score depends on your income.
A credit score does not depend on your income or assets. There are chances for a high-salaried person to have a low score, whereas an ordinary salaried person to have a high one. It purely depends on how you manage your credits. And if you never applied for a loan, you may have no score.
Closing old accounts can improve credit scores.
Having longer and multiple credit reports with a clean history will improve your credit score and help lenders determine your credit behavior. Closing old accounts is not suggested unless you have a reliable reason.
Most people check their Credit scores at these times:
- Before applying for a new line of credit such as a personal loan or car loan
- In order to build a good credit habit
- After the loan has been closed, double-check that all changes have been recorded.
Always clear your doubts regarding credit score by reaching out to reliable financial advisors. They can help you with proper suggestions. You can try to pay your bills on time and have a good credit history, eventually improving your credit score.