In the modern era, banking institutions have become digitized. You may have heard about the term credit scores while working with financial elements. These credit scores play a vital role in deciding the financial opportunities available to individuals. Whether you’re applying for a loan or a credit card, your credit score is a critical determinant. Whether the customer opened a bank account online or offline doesn’t matter. Having a good credit score will benefit them in certain ways. Let us understand their credit score and significance in this article.
Table of Contents
What is a Credit Score?
A credit score is a representation of a customer’s worthiness. , these scores provide a basic understanding of individuals and how they work with their financial elements. Credit scores are majorly used by financial institutions such as banks, credit card companies, and lenders to make wise decisions about extending credit to consumers. If you have a good credit score, lenders and banks will help you by extending financial support.
Credit Score Ranges:
Credit scores range from 300 to 850, which will decide the creditworthiness of customers. The credit score ranges are categorized below.
- Excellent (750-850): customers with credit scores in this range are considered low-risk borrowers. They are more likely to qualify for the best interest rates and credit terms. Banks will provide them access to a wide range of financial products.
- Good (700-749): Consumers with scores in this range are allowed to get good financial support and a decent interest rate.
- Fair (650-699): Customers Falling into this category are considered a moderate risk to lenders. While opting for financial-related services, these customers may provide with limited offers.
Factors Influencing Credit Scores:
You may have thought about how they calculate a person’s credit score. These credit scores are calculated based on several factors. Customers’ payment history, credit utilization, credit history length, and credit mix are the deciding factor of credit score. The most critical factor is payment history which reflects whether a borrower has consistently made on-time payments for their debts. Credit utilization and credit history length show the previous credit records of the customer. A phenomenon called credit mix refers to the types of credits you make which can positively impact your credit score. New Credit Applications refer to whether you are frequently opting for financial debts. Having low new credit applications is recommended.
Importance of Credit Scores:
A good credit score opens the doors to different financial opportunities. Customers with good credit scores will easily get loans and credit cards. Some banks offer lower interest rates for loans if you have an excellent credit score. Most companies check the employee’s credit score while hiring them. This is to verify whether they are good at managing financial elements. If you are renting a home or want to buy a new home, your credit score will positively impact getting better financial services.
Final words:
Whether you have a open savings account or a current account, a good credit score will let you enjoy unlimited financial perks. Consider the above-mentioned points to get to know about credit scores.
