How to improve your credit score | Why Credit Score

1. @ThelessonsGuy Why Credit score matter? A guide by Arjun & Arya

2. You might have heard about credit score and even checked on it, but do you understand what that number means? The first time when I looked at my score in the office, all I knew was the one with the higher number wins. . . Yeah, It was childish. What is the credit score? Your credit score measures your ability to pay back the borrowed amount, so this number lets lenders assess the risk they take when loaning you money. It is calculated based on factors like your credit history, repayment records, credit inquiries, etc. Why is the credit score so important? When you apply for a credit card or a loan from a bank, having a higher credit score could enable you to get your request approved without any hassles. Also, people with a high score can get further benefits like higher loan amounts, lower interest rates, etc.

3. People with lower credit scores will have to pay higher interest rates because they are riskier to the lenders. Higher your score, the better you look to lenders, while lower scores could mean that they would even deny you the services. What is a good credit score? In India, the most popular and oldest credit score is from CIBIL, and it ranges from 300 to 900 In the US, the credit score ranges from 300 to 850

4. Who generates this score? In India, there are four companies responsible for generating this data CIBIL TransUnion (Score 300 – 900) Experian (Score 300 – 900) Equifax (Score 300 – 850) High Mark (Score 300 – 900) In the US, the three companies responsible for generating this data Experian Equifax TransUnion

5. Will your credit score go down if you inquire? There are two types of inquiry. A soft-inquiry requested by an individual will not reduce your credit score, while a hard-inquiry made by a financial institution to check your credit application will lower your credit score by some points. How can you improve your credit score? 1) Use a credit card There is a misconception that if you always pay by cash or don’t take loans, you will have a high score. But that is wrong as you won’t have a credit history to assess your creditworthiness. Having and using your credit enables the credit bureaus to calculate your credit data. Having and not using your credit card means you are not generating any data.

6. 2) Keep your credit utilization low Try to keep your credit utilization under 30%. For example, if you have a credit limit of $1000, then try to keep it under $300 but if your credit limit is $2000 a $300 credit contributes only 15% of your credit limit So in a way, you can keep your utilization low by requesting a higher credit limit, but make sure you do not spend that money mindlessly. (Financial Wellness Habits) 3) Pay your dues on time Your payment history has a significant effect on your credit score, so avoid late payments at all costs. If you have the option to set up automatic bill payments, then enable it so that you will not forget repayment. Why do we need to save money

7. Conclusion Having a high credit score will allow you to get a favorable interest rate compound that over multiple years and you will be saving a lot of money. Given an option to choose between a 10% or 15% interest on your loan, which one will you choose? And that is the reason why you need to have a good credit score. Thank You!! Related stories from @The Lessons Guy How to improve work life balance Passive Income Ideas for 2020 How to deal with difficult people at work Understanding Savings Account