22-Aug-2018 written by : FSI-Team
What is the 750 score? The credit score is determined by Payment History, Amount Owed, Length Of Credit History, Types of Credits and New Credit and is a number anywhere between 300-900. 300 is considered the lowest and 900 is highest. A score which is 750 or plus is considered the good score. A score between 650 - 750 is average and any score below 650 is considered bad. Now, the question may arise is: what is the significance of this score? What a good, average or bad credit score indicates?
When the score is 750 or above, the credit when applied for is approved easily. Also, the interest rate applicable is reasonable and much lower. When it comes to a score which is 650 - 750 and which is average, the loan or credit card which is to be approved may face complications along with higher interest rates compared to 750 or more score. Now, talking about a score which is below 650, which is Bad CIBIL Score, the loan applications are on a troll. And also, the interest is at way higher. Speaking about credit score in India or maybe discussing it not a very common factor as other political, entertainment or financial discussions. Financial literacy is specifically in this genre is very less. So knowing pro’s and con’s is difficult.
Why is it necessary to have a score of 750 or above?
First, one has to understand the importance of the 750 score, so as to make sure it should never go beyond it. Let’s taken an example of two friends, Raj and Rachna. Both of the same age, having the same salary and in a good position at work. Raj has his score 763 and Rachna has her score as 621. Both of them go to a bank and apply for a personal loan of 15 lakhs. Raj’s application was approved within no time and with the interest on the principal loan- interest rate of 26%. So, that’s the impact of the score above 750.
We will not discuss in detail why the score was low. As mentioned in the first paragraph, there would be some glitches in those 5 parameters which makes the credit score. What is important is, how to improve credit score now? A credit score is established after approval and utilisation of any credit for six months. So, either a loan or a credit card that is taken today will start building the score. If one is responsible enough in repayment, utilising the credit limit upto 35% of the total available limit, the score will always remain good. But missing or delaying payments, using credit score for more than 35% - 40% of total limit would start messing with that three digit number. This is the case if someone is new, what in cases like Rachna’s? When the score is already established but is lower.
In such cases, one has to first clear all the past outstanding payments. Once done, credit utilisation of credit card should be watched for. No late or missed payments. A responsible payer will always be rewarded with a great score! There is no specific timeline that can be measured for the score to go up, but it’s definitely not forever. The score gets updated mostly every month. With the seriousness of making the payments each month, and keeping a deep watch on finances, and the ratios, the score will start improving. Also, with that, the reaching to 750 scores also depends on where one stands. A score which is around 500 would take more time to reach the benchmark compared to the one at 650. the kind of defaults one has done would also affect in reaching that score.
But never the less, the one who puts efforts in the right direction would always reach to the goal! So work diligently.