What is a good credit score? Differences between good, bad, and ugly scores

Low credit score can make the likelihood of obtaining personal loans, or credit cards less viable. Due to this, it's crucial to take ownership of your credit profile and improve it, and that can be done by correcting previous financial mistakes and developing good credit habits. Achieving a good credit score does not only improves your chances of obtaining loans, but it guarantees lower interest rates and better terms.

A good credit score offers more favourable financial opportunities, lower loan interests, and peace of mind for you and your family. We shall dissect some credit-related important issues in this article, namely credit score ratings, credit cards, and how actual credit scores may or may not pertain to your financial future.

What exactly is a credit score?

A credit score is nothing but a financial report card. It is just like the report card children get in their schools of their academic performances. So, it is imperative that the report card must have high marks to make it stand out.

Therefore, the credit score of an individual is his or her financial report card. This report reflects the real financial health of an individual according to which a lending institution takes a call on whether it will be reasonable for them to lend money to any particular individual.

To further elaborate, a credit score is a three digit number. It ranges from 300 to 850. It reflects an individual's reliability as a loan borrower. 

What is a good credit score? 

A good credit score is simply like higher marks in any examination. Therefore, a good credit score reflects a stronger financial might, greater trustworthiness, creditworthiness and it hugely enhances the chances of securing loans and credit cards with favourable terms and conditions.

In fact all financial institutions strive to secure good credit scoring bearing individuals as customers. Some examples of leading financial institutions in India that look at credit scores, credit profiles, repayment capacities, loan repayment endurance levels are: HDFC Bank, Bajaj Finance, ICICI Bank, Kotak Bank, Bajaj Finserv among others. Now let us discuss the good, bad and ugly credit scores briefly:

The importance of a good credit score

A good or high credit score opens up numerous financial opportunities. With a strong credit profile an individual can qualify for personal loans, exclusive credit cards, lower interest rates on repayments. Further, good credit score can also result in lower insurance premiums and even improve ones job securing potential.

Understanding bad & ugly credit score

On the other hand a low credit profile or a low credit score can obstruct financial goals and ambitions. Now with a low credit score an individual might still secure home loans, personal loans or credit cards, still all of this often accompanied by higher interest rates.

Now if your credit score falls into the "ugly" category, you might struggle to get approved for any financial products at all. This is the worst case possibility of the three options.

Consequences of having bad credit score

This higher rate of interest on repayment is bound to increase an individual's overall debt burden. A poor score can also interfere in lifestyle related things like difficulty in renting an apartment along with even challenges in securing a cell phone plan. That is why due caution needs to be followed while maintaining credit scores diligently.

Factors that contribute to a severely low score include high debt levels, missed payments, lack of knowledge, recklessness with earlier payments or applying for multiple credit lines in a short period.

Key tips to maintain a good credit score

• Making payments on time: Always pay your bills on time. This is crucial for maintaining a good score.
• Properly managing balances: Keep credit card balances below 30% of your available limit to demonstrate responsible usage.
• Managing old accounts: Never close older credit accounts. As history is important. They contribute positively to your credit history profile and build trust.
• Reviewing your credit report regularly: Carefully check for errors or signs of fraud in your credit report. Follow up statements, debits and payments. As errors of mistakes in your report can negatively impact your score.
• Keep yourself informed at all times: To be clear on any doubts it is always correct to refer to the official sources like the bank websites, credit card customer care services of the respective banks or financial institutions.

Therefore, by understanding the importance of good credit score and focusing on working to enhance the same an individual can pave the way for a secure financial future and a reasonable experience. Spreading correct financial education in this regard is crucial.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.