Credit health is an important determining factor for borrowing funds from banks and other financial institutions. A bad credit score can cause lenders to turn down a person’s request for a loan. Although there are no set standard scores, a good credit score is anything from 750 and above, while a score below 600 is considered as bad or poor.
- Each time a new credit is applied for, the financial institutions will run an inquiry on your . This holds a 10% weightage when assessing the credit score. It reflects poorly on the applicant when too many institutions seek credit information at the same time and this negatively affects his or her score. Opening a number of different credit accounts show greater credit risk. When it is shown in the that the individual has applied for various new credit lines during a short span of time, the credit scores can go down.
- Holding a mix of various types of credit accounts for about 10% of the credit score. If an individual only holds unsecured loans then his or her credit score will be affected. It is important to have a healthy mix of secured and unsecured loans - possibly 80% in secured loans and 20% in unsecured loans. A car loan or a home loan can work to one's advantage as compared to a personal loan. However, keep in mind that 35% of a person's credit score is dependent on repayment history and so whatever kind of loan one has taken, make sure that it gets paid in full. Maintaining the right mix of credit and repaying it on time is another means to
Getting a bad or poor credit score is not the end of the road. Some financial institutions will be open to lending funds in exchange of high interest rates. Additionally one can approach small co-operative banks that are not part of CIBIL yet. Keep a check on the credit history - possibly 3 times in a year. Ensure that the score only keeps building up. Financial planning is crucial if one wants to steer clear of any debt trap. Calculate how much income one makes versus how much is spent in a month. Take control of the finances and get into the habit of effective financial management at the earliest, as it can help save money and safeguard your future.