A credit score plays a very important role in our financial life, credit score stands for your creditworthiness. A good credit score makes your financial life much smoother which makes you eligible for premium credit cards like hdfc regalia credit card or sbi prime credit card and if you have a very low credit score you will face some serious difficulties in getting a credit card or any kind loan. Though you can still get a credit card against FD like icici coral credit card against fixed deposit, or any entry-level credit card which will come with very little benefits so you will surely miss the premium benefits that a credit card offer.
To know how a credit score affects your life, you have to know what a credit score is? How much credit score required for credit card application? and How it is calculated?
What is a Credit score?
A credit score is a three-digit number set by credit bureaus that shows the credit worthiness of a customer. This number ranges between 300 and 850, and any credit score above 750 is a good credit score. When you apply for a loan or credit card the financial institution determines the amount you are eligible for depending on your credit score.
Now if you are thinking about how much credit score required for credit card application? or what is a good cibil score for credit card? Then here is the answer, it depends on the credit card you are applying for. If you are applying for an entry-level credit card like bob select credit card or ubi credit card then a 700+ credit score will be enough. But if you are applying for a premium credit like sbi elite credit card or hdfc infinia credit card, you will need to have a higher credit score, 750+.
How to calculate cibil score for credit card?
Every month financial institutions send their customer’s information like their loan amount, unpaid dues, repayment history, etc. to these credit bureaus. These credit bureaus then determine the score of the customer by evaluating their credit history. Normally there are five main factors that play the most important role in determining the credit score.
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Repayment history:
Credit bureaus keep a detailed record of your repayments, if you repay your taken loans or card bills on time, it helps to build a good credit score. On the other hand, just a single unpaid card bill or due credit card emi can affect your credit score severely.
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Credit Utilization ratio:
The credit utilization ratio (CUR) shows the percentage of the total credit card limit that you have used. And it is suggested to keep your credit utilization ratio below 30%. If your CUR is higher than 70% – 90% or even higher it will mark you as a credit-hungry customer which will lower your credit score significantly.
To maintain a monthly expense budget you should check your credit card balance regularly. And if you are thinking how to check credit card balance? Then you can visit FAQ’s page which will help you to check your credit card balance using your net banking or mobile banking or any other way.
If you are using a credit card that has a lower credit limit due to which you cross the 30% barrier then rather than using 1 card use 2 – 3 different cards by which you will not only able to keep the credit utilization rate under 30% but also from those cards you can get different offers too those can help you to save for your spendings.
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Credit Age:
It is another very important factor that helps to determine the credit score. If you are willing to get a very good credit score, then try to use a card as long as possible as it will give a positive signal on your loyalty as well as credit bureaus will get a very fair share of data on your financial behavior. So, try to be a long credit card holder of any bank.
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Credit Inquiries:
Every time you apply for a loan or new credit card, the card provider or the lender marks the inquiry, which is also used for your credit score determination. If your application gets accepted then it’s a positive sign for your credit score but if it gets rejected then this will affect your credit score very badly. Rather than applying regularly, try to make a good credit score, automatically you will start getting offers from different lenders as good customers are not so easily availble as every lenders try to attach those customers with them.
There is a table given below that can help you to understand which factors affect your credit score more.
| Factors that matters | How much it affects |
|---|---|
| Payment history | 35% |
| Existing credit limit | 30% |
| Age of Credit | 15% |
| Types of credit | 10% |
| No. of inquiries | 10% |
How can a credit score affect your financial life?
Credit score plays a key role to shape up the financial journey. A higher credit score makes you worthy to get a loan at a lower interest rate, higher credit limit, easy loan approval, and lots more. With a good credit score, you can also apply for a better credit card like icici sapphiro credit card or axis vistara credit card which offers tremendous benefits for its users. So, it is evident that having a good credit score is very much important.
On the other hand, if your credit score is low, you will face several difficulties in your financial life, in other words, a bad credit score will attract a higher interest rate on loans, late approval of loans along with lower credit limit. A higher credit utilization ratio, unpaid dues, and multiple rejected credit applications affect your credit score badly. A lower credit score can affect your daily life in these ways:
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Loan Approval:
When you will apply for any loan/credit card, your credit score determines whether you should get the loan or not and also the credit limit or loan amount along with in case of loan the interest rate too. With a good credit score, you can get an instant approval for any loan. On the other hand, if your credit score is low, you will face a roadblock while getting the loan, in case if you get it then also you may get a lower credit limit, and there will be a high probability to get it at a higher interest. Even if you consider starting a new business, then also you will face problems in case of approval which is otherwise very easy to get loans like the startup india loan.
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Credit card limit:
The credit limit of your credit card depends on your credit score, if your credit score is dropping continuously, then the card issuer will reduce your credit limit. And if you don’t able to manage the credit utilization ratio under 30%, with default on the credit card bill payment then your credit card may be blocked.
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Starting new business:
If you are going to start a new business, then there is a high chance for you to go with a start up business loan as it offers various benefits such as low-interest rates, ease of approval, etc. But if you have a lower credit score, you will be less worthy to get your desired unsecured business loan, and you will have to pay a higher business loan interest rate too along with other financial business benefits such as an overdraft facility you may have to face restriction.
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Impact on business:
If your business partners came to know about your low credit score, then there will be a high chance to get neglected by other party or your business will shrink as no one likes to do business with bad credit history people.
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Impact on personal life:
Credit score also states your timely payment habits. Lenders do track your crif credit score, and if your credit score is bad/decreasing continuously, then there is a high chance to get you legal notices which will affect your personal life too.
How to fix a bad credit score?
People go through good as well as bad times, so in any case, if your credit score affects you badly, then do follow these steps to fix the issue.
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Repay outstanding amount:
Try to clear off your outstanding as soon as possible. Existing credits play a big role in calculating your credit score. So, paying for them will improve your credit score. Also, pay the high-interest credits first, which will reduce the financial load from you then pay the newest ones first. For instance, if you have taken an axis bank car loan recently, then pay it off first, in this way you can maintain your average length of credit.
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Pay bills on time:
Every late payment hurts your credit score, so try your best to pay your bills on time. If there are no other options, at least pay the minimum due in credit card bill and stop using your card until you pay the due amount in full.
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Become an add-on member:
If one of your relatives has a credit card account with a good credit history, you should ask him/her to make you an add-on member of his/her account. The good credit history of the primary credit cardholder can create a good impression on your credit report too.
But remember if he/she makes a default that will affect your credit history too. If you don’t know what is add on credit card? Then visit our credit card FAQ page.
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Get a new credit card:
You can also apply for a new credit card after 3 – 6 months, as it will improve your credit scrore by using under credit utilization ratio. Also, do remember that never make a default on the new credit card. For this try to get a basic or life time free credit card, this is because if you get denied for a credit card application then also your credit score will get harmed. So it is recommended to go with a basic credit card. In this case, hsbc visa platinum credit card or indusind bank platinum aura credit card will be a good option for you.
Also, you should always keep at least a 6 months gap between two credit card applications.
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Keep old credit cards:
Old credit cards create a good impact on credit scores. Closing an old credit card will reduce your credit history. So you should keep using your old credit cards.
And if you face any financial problem, then you can request your lender for giving some additional time to repay your dues, as it will save you from that chaos. Building a good credit score takes a long time but degradation can happen quickly, so always use a credit card or loan responsibly.
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