Borrowing to tide over financial situations or buying something that you need but cannot afford right away is a good thing to do. However, as a borrower, it is important that you understand your personal credit reports, as well as, your credit score. Here is a guide on the definition and role of credit score, why is it important, and how you can improve your credit score.
What is Credit Score And Why is it Important?
A credit score is a 3-digit numerical value that determines your creditworthiness. It depends on various factors, including your monthly income and usage, credit card history, a check on pending debts, the duration, and types of credit, and how often you have applied for new credit forms. A good credit score helps you borrow a larger amount at lower interest rates.
In simple terms, your loan amount and interest rate are decided based on the credit score. If you default on repaying your EMIs, it will affect your credit score and lower your credit limit in the future.
How to Improve Your Credit Score?
There are various ways by which you can improve your credit score, especially if it’s low. However, the best way to improve your score is by maintaining a history of debts that are paid on time. Other options include avoiding debts, maintaining low levels of borrowing, having a long credit history, and refraining from applying for more credit.
What Happens When You Have a Low Credit Score?
When a loan is granted to an individual, who has a low credit score, s/he will be charged a higher interest rate on the borrowed money, as compared to someone who has a higher credit score. In other words, you will end up paying more money for your loan amount if you have a low credit score – and nobody really wants that.
All in all, the best way to maintain a strong credit score is to minimize debts, and if you do have any debts, then to pay them off in a timely manner.
StashFin helps individuals to improve their credit score and eventually his/her creditworthiness. To know more about StashFin Personal Loans and Credit Line Card, visit StashFin.