Why Should You Care About a Bad Credit Score?

Banks and other financial institutions check the credit history of loan or credit card applicants to find their ‘creditworthiness.’ A credit score is calculated on the loan and bill payment history of the applicant. A lower or bad credit score means lenders consider the person incapable of repaying the loan.Understanding what is a bad credit score , the responsible factors and ways to improve the score could help you be ‘credit ready’ with lending institutions.

A credit score can be anywhere between 300 and 900. A score of 300-600 may be considered as a bad credit score, and a score of 700-900 may be considered a good credit score by most lenders.If a person has paid credit card bills or EMIs on time without default and has managed to pay off every loan taken, their credit score will be good or high. On the other hand, if a person has failed to pay back dues in time, missed EMIs or did not manage to pay back their loans, their credit history will be low or bad.

Some factors that may negatively impact your credit score are;

• Delay in paying dues
• Defaulting on previous loans and credits
• Utilising a major percentage of the credit limit
• Applying for multiple credit cards or loans
• Discontinuation of old credit cards

Some disadvantages are;

• Banks and other lenders can reject your loan or credit card applications
• Loans, even if sanctioned, come with a higher interest rate
• Difficulty in starting your own business
• Each time you reapply for a loan or credit card after rejection by a lender, it could further lower your credit score

• Review your Credit Report Regularly : Check where you lag behind and make amendments by paying the dues regularly and not defaulting.
• Ensure Low Credit Utilisation Ration : Try to limit your credit card usage to just about 15-30%. Exceeding your credit card limit will mark your behaviour as credit hungry. Add to it; you may not even be able to pay for it, which could further worsen your credit score.
• Pay off Pending Credit Card Bills, Payments or Debts – Talk to your lender if you have difficulty in paying your EMIs so they can take measures to make it easier for you. While paying credit card bills, pay the whole amount instead of the minimum amount due, to better your credit score.
• Add Secured Loans : If a major part of your debt is personal loan or credit card payments, it may impact your credit score negatively. Adding secured loans while maintaining a low debt-to-income ration can help you improve the score.

A bad credit score can put you in a disadvantage and prevent you from achieving your financial goals. Try to improve your score with disciplined financial planning so you can avail finances when you need.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.