Your credit score is one of the most imperative aspects of your financial portfolio. Typically, your credit score will influence the approval status whenever you apply for a loan or credit card. Moneylenders, including banks and non-banking finance companies, consider your credit score process and sanction your loan and credit card applications.
In a layman’s language, your credit score is a deciding factor determining your creditworthiness to the lender. A good credit score ascertains the borrower’s ability to repay the borrowed sum within the stipulated tenure.
Introduction to Bad Credit Score
Any person is considered to have a bad credit score if they have a history of either not paying their loan or credit card EMIs on time or owing a massive sum of uncleared debt. Individuals with bad credit scores often find it very difficult or even impossible to get approvals on loans or credit cards.
What is a Bad Credit Score?
Credit score ranges differ from one country to another. Let’s consider the examples of India and the United States. In India, it ranges from 300 to 900, and in the US, it ranges from 300 to 850. While a credit score between 300 and 500 is considered a bad credit score in India, any credit score below 580 is a bad score in the US.
What is considered a good credit score?
Most of the banks and non-banking finance companies consider a credit score between 650 to 750, on a scale of 300 to 900, to be a good credit score. Individuals falling under the good credit score and excellent credit score range between 750 to 900 are often eligible for loans and credit cards.
Maintaining a good credit score is very important. For individuals falling into the bad (300 to 500) and average credit score (550 to 650) range, it is vital to improving your credit score when you are planning on applying for a loan or a credit card. So, how can one recover from a bad credit score?
Before getting into different ways of recovering from a bad credit score, let’s understand the factors that help and hurt your credit score.
Factors that help your credit score:
- No public record of collection services employed by your lender
- Timely repayment of EMI without missing a payment
Factors that hurt your credit score:
- Loan balances
- Missed payments and penalty charge on missed due dates
- Lender utilizing collection services to settle the loan amount
Often, circumstances force borrowers to fall into the wrong credit score category. However, by employing some of the time-tested methods, individuals with a bad credit history can improve their credit score.
Different Ways to Recover from a Bad Credit Score
1. Seek free credit reports from banks and financial services. Review and analyze and review your credit report to identify the problem areas.
2. Make necessary changes and improvements to overcome the problems contributing to your bad score.
3. Ensure timely payment of your EMIs. Also, opt for auto-debit options, preferably, by choosing dates when your account is sufficiently funded.
4. Clear your loan rather than transferring your debt to other accounts. Transferring loans also incur additional charges like the loan transfer fee, thus contributing to the principal amount.
5. Getting new credit cards is one of the means of building a good credit history.
6. Make sure to have a low credit utilization ratio.
7. If you have an existing credit card, try to increase its credit limit.
8. Never remove old credit accounts and utilize your credit cards only during emergencies.
9. Clear your credit card debts before incurring interest on your card spends.
Conclusion
Maintaining a good credit score is imperative, as it influences the approval or sanctioning of your loan or credit card. You can follow the above-listed tips to recover or improve your credit score.
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