Why A High Credit Score is Important And How To Improve Your Credit Score

Why A High Credit Score is Important And How To Improve Your Credit Score

Lenders review your credit score when you apply for a loan or credit card in order to determine how you will repay the debt.

G R MukeshUpdated: Thursday, June 20, 2024, 04:04 PM IST
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Lenders review your credit score when you apply for a loan |

It's important to keep your credit score high, but many people overlook this important financial habit. This ignorance, combined with bad credit behavior, results in a low credit score, which can seriously affect your future financial prospects.

An unfavorable credit score will make it incredibly difficult for you to get access to credit, as lenders view it as one of the primary factors determining whether to process your loan application.

Credit bureaus, or credit information companies, measure it.
Lenders review your credit score when you apply for a loan or credit card in order to determine how you will repay the debt. More than 750 is typically regarded as a high credit score, indicating a responsible borrower with an excellent credit history.

Most credit card companies and lenders favor it. Customers who have a good credit score have advantages such as the best interest rates, plenty of offers to compare and select from, ease of access, and other favorable terms and conditions while taking a credit or loan.

Reasons Behind Credit Score Drop

The most frequent cause, though, is when a borrower neglects to make an Equated Monthly Installment (EMI) payment on their loan.

Another common reason is high credit utilization. You should never use 100 per cent credit on your credit card. It shows a high credit need for individuals, which indicates a default risk for the borrower.

How To Improve Credit Score

Paying your credit card bills and EMIs in full and on time is crucial. Additionally, you should refrain from actions that show an excessive reliance on credit, such as frequently maxing out credit cards or submitting numerous applications for loans or credit cards in a short period of time.

It will take time and consistent, responsible credit usage over a period of time to raise your credit score if you have a low credit score. Therefore, it is preferable to take the required actions in a timely manner to raise the credit score.

Impact of low credit scores

A low credit score could impact your future financial situation. Applicants with bad credit scores may have their credit applications outright rejected by lenders, and they may not be eligible for any unsecured loans. Rejected loans are recorded in your credit report as well and can actually reduce your score even more.

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