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What is Credit Score ? How is it Calculated ?

What is Credit Score ? How is it Calculated ?

Personal loan for Low Cibil score in bangalore – Find out what information goes on your credit report, how credit scores are calculated and how banks use your credit history to decide on your loan applications.

The secret of a good credit scoring lies in:

  • Pay the bills on time
  • Manage bank accounts, credit cards and loans well.

But have you ever wondered: How does scoring work? Why do we need a historian of our financial operations?

Why Does Credit Scoring Exist ?

The credit history reporting system helps banks avoid lending money to customers who are already overexposed or who have been reported as bad payers.

Until less than 50 years ago, the banking sector represented a very different experience. If you wanted to borrow money, you had to go to a bank branch and personally convince a manager to grant the loan.

You would have needed to show proof of your income and, most likely, you would have been asked for personal references that could guarantee for your reliability.

In the past, almost all loans were covered by collateral , which means that you would need to offer collateral to settle the loan.

The most common example of a guaranteed loan nowadays is represented by the mortgage for the purchase of a property : In this type of agreement, the property itself still acts as a guarantee.

With the passage of time, the increase in credit cards as a convenient electronic purchasing tool has also cleared the unsecured loan.

And although the unsecured loan may be more profitable for banks, it is very risky because there is no guarantee for the bank to repay the amount paid out if the borrower does not repay the loan.

Consequently, the credit scoring system was created to provide banks with a centralized source of information on potential customers.

What personal information is present in the credit scoring?

Your credit scoring contains information that identifies you, such as:

  • First name
  • Address
  • Unique Identification no. ( Pan , Adhaar Or Voter )
  • Information about your financial activities, such as loan applications, balances and payment histories

Most of your credit report contains detailed information about recent activity on your financial accounts. This includes accurate information.

Credit applications

Whenever you apply for a credit, regardless of whether you are approved or not.

Loans open

The data will include the bank, the loan amount, the loan opening date, the monthly payment amount and the payment history.

Use of credit cards

The data includes the bank, credit limit, account opening date, payment history and the latest balance.

Closed accounts

A closed account remains on the relationship for up to seven years.

How do banks use your credit scoring information?

Today, specialist companies use our data to create credit scores . Most financial institutions will use them when we turn to them for a loan.

With that said, you can expect this to happen more carefully when you are applying for a major loans, such as a Mortgage loans in Bangalore , Instant Personal loan in bangalore, Instant Business loan in bangalore

In addition to approving your loan, your credit scoring can determine how much you will pay for the credit . The higher your credit score, the less interest you will be charged for the loan and you’ll get Personal loan for Low Cibil score in bangalore.

How do you Get a Good Credit Scoring ?

A good credit scoring is composed primarily of 2 main items :

  • Loans requested and repaid
  • Utility bills and household bills paid without delay

How long does it take to build a good credit score?

This aspect is linked to an ancient problem in the financial world.

You need to enjoy some trust from Financial institutions before getting funding. But it is unlikely that you will be trusted without first having a credit history!

The best thing to do is to start building your own financial “credibility” from a young age.

A key part of credit scoring is time. Typically , it takes about three years of responsible credit use to have an average score.

Why is paying bills on time so important?

The payment history accounts for about 35% of the credit scoring system , more than any other factor.

  • Making timely payments is the number one point from which to build a good credit score.

It is therefore not surprising to find that nothing will ruin your credit scoring faster than delays on fixed-term payments.

The longer you wait to pay them, the lower your credit score will be.

How does debt affect your credit score?

Too high debt levels are bad for your finances and also for your credit scoring. The level of indebtedness affects 30% overall .

Using your credit card affects your score. So be careful not to end up in red!

Other factors influencing credit scoring

Other factors influencing credit scoring include:
  • Average age of your checking accounts
  • Recent funding requests
  • Real guarantees affecting its assets .

Each of these factors makes up about 10-15% of the credit score .

The longer you have had your checking account, the better.

Finally, try to limit credit applications to no more than two every six months.

Too many credit requests in a short period of time can decrease the score because you seem to be in dire need of money.

There is one exception, however, and it concerns credit requests of the same nature which indicate that you are considering a very specific expense.

If these requests occur within about one month of each other, they will generally be considered as one request.

How can you remedy bad credit scoring?

In the same way you build you build a good one! Paying bills on time and staying away from debt .

The only way to “repair” your credit is to pay your bills, reduce the level of debt over time and limit the demand for new loans.

Expect one to two years of responsible credit management before there is a tangible impact on credit scoring , and be wary of anyone who tries to sell you shortcuts to obtaining a better credit score.

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