What is a good, bad, and ugly credit score? Key differences explained

A poor credit score reflects poorly on not only a person’s finances but even his character. Therefore, if you are someone who has a poor credit score you need to clear your name and ensure that you are able to improve your credit profile and make up for the earlier errors.

It is also clear that a poor credit score can significantly undermine the financial prospects of an individual and his or her family. Hence, let’s briefly discuss the simple concepts associated with credit scores. Concepts like credit score rating, credit cards, their implications, how they can shape the future of a family in both good and the bad ways.

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. A higher credit score is simply like higher marks in any examination.

Therefore, a higher credit score reflects a stronger financial might, greater trustworthiness, creditworthiness and it hugely enhances the chances of securing loans and credit cards with favorable terms and conditions.

In fact all financial institutions strive to secure high 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 Good

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 can also result in lower insurance premiums and even improve ones job securing potential.

The Bad

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.

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.

The Ugly

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.

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.

Five basic tips to improve your 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 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.