You can apply for a personal loan when you have financial needs for growing your business, medical emergencies, home renovation, wedding, etc. Since it is an unsecured loan, lenders check your credit score to know your credibility and credit behaviour. Therefore, credit is an essential factor when it comes to personal loans.
In this article, you will get answers to various questions like what is a good credit score? And how having a good score is beneficial when applying for a loan?.
What is a Credit Score?
A credit score indicates a person’s creditworthiness, and it typically ranges from 300 to 850. This Score considers various factors such as payment history, length of the credit history, and past and current credit accounts. Since it shows the ability of a person to repay the loan, lenders consider this Score as a deciding factor while approving your loan application. Therefore, having a good score can help you get personal loans at lower interest rates.
Credit Score Table
| Credit Score Range | Credit Rating |
| 300-579 | Very Poor |
| 580-699 | Fair |
| 670-739 | Good |
| 740-799 | Very Good |
| 800-850 | Exceptional |
Key Factors that FICO and VantageScore consider while evaluating your Score
FICO and VantageScore have similar scores that range from 300 to 850. Though they are identical, each scoring model gives different weightage to different factors.
FICO Score
- Payment history (35%) – Indicates whether you have made timely payments
- Amounts owed (30%) – indicates the credit utilization rate.
- Length of credit history (15%) – indicates how long you have had loans.
- New Credit (10%) – shows the number of new loans you have taken.
- Credit mix (10%) – suggests the variety of credits such as credit cards, education loans, home loans, etc.
VantageScore
Shows factors that are more influential in determining the credit score.
- Payment history – Extremely influential
- Type, length of the credit and credit utilization – Highly influential
- Total debts – Moderately influential
- Recent credit behaviour, inquiries and available credit – Less influential
How to check your credit score for free?
You can check your credit score for free using Buddy Score and get an instant credit report to know your credit behaviour. It is best to check your information regularly to identify errors or potential frauds. By doing so, you can rectify the mistakes immediately from your respective credit bureaus.
How does a good credit score benefit you when applying for a personal loan?
A good credit score helps you in many ways regarding personal loans. Here is how.
- It makes you eligible for a loan application.
- It helps you get loans at lower interest rates.
- You can quickly get a higher loan amount.
- Your loan application will get an instant approval
- It makes you a credible borrower.
Tips to improve your credit score
- Pay your dues on time without defaulting
- Maintain a credit utilization ratio below 30% of your income
- Keep your old accounts open to maintain a long credit history
- Avoid making multiple hard inquiries.
- Review your credit report once a year regularly
- Check your Score frequently.
EndNote
Having a good credit score will make you a low-risk borrower, and as a result, lenders instantly approve your loan. Though a good score gives a lot of benefits, it is equally essential to maintain that Score by making timely payments, clearing your past debts and keeping your credit utilization under control. Therefore, you can get the best personal loans available in the market with a good score.
