Good credit score: What are the different ranges and their meanings? | Mint

Your financial stability and income plays a major role in determining your credit score. Lenders may use this score to determine your credit worthiness. But what is a good credit score? In this article we are going to understand what a credit score is and its ranges. With this you can have a clear understanding of your credit worthiness and as a result make informed decisions on your future borrowings.

What is a credit score?

Credit score is the number which helps determine your ability to repay credit and gives an overview of your credit history. This mainly depends on your payment history, credit utilisation ratio, credit history duration, credit categories and number of current credit enquiries. Hence, a good credit score puts lenders at a lower risk after which they may offer lower interest rates and repayment periods.

Credit score range

Credit scores usually range between 300 and 900 and are grouped as; no score, poor, average, good, very good and excellent.

Advantages of a good credit score

A good or high credit score is a summary record of consumer credit history that assures a particular kind of customer is safe for the lenders to accept, thus minimising the risk.

Impact of credit score during application process

Excellent credit score: This means that you have made timely repayments of the loans or credit cards and you have no records of defaults. This credit score means that you will get multiple loan benefits such as fast approval on loan, lower and competitive interest rates on loan as well as excellent offers on any kind of credit.

Good credit score:If you fall under this category, you may stand a reasonable chance of getting your loans approved because the credit score indicates that you are reliable and capable of repaying the loan, but there is still risk. Consequently, you are likely or unlikely to get the various credit benefits that come with the loan from your lender depending on their wish.

Average credit score:This has indicated that you may have been a defaulter in your earlier debts. In these cases, even if you are extended a credit line by the lenders you may not be able to get it on beneficial terms and conditions.

Poor credit score: A low credit score is most undesirable by lenders. This means that you are not capable of repaying the debt on time and are a regular defaulter. The approval in such cases is highly unlikely.

Conclusion

It is therefore important to have a basic understanding of what a credit score means. Although there is no exact definition of what constitutes a ‘good’ credit score. It is generally accepted that if you have a higher credit score then you have a better credit worthiness.

However, your credit score can be increased if you make timely payments and use credit cards only when really needed. You should also understand the fact that excess borrowing can put you in a situation of having more debt than you actually afford. This can then ultimately lead you to a debt trap. Therefore, you should always analyse your financial ability and then only take debt if really needed.