Your credit score is really important when you want to borrow money. A good score, usually 750 or more, shows that you're reliable at paying back what you owe. But if your score is low, it could mean you've had trouble paying bills on time or made mistakes like applying for lots of credit all at once. This makes lenders worry you might not pay them back, so they might not want to lend you money.
What are the Disadvantages of Having a Bad Credit Score
Having a poor credit score comes with several disadvantages:
Higher interest rates: Lenders may charge you higher interest rates on loans due to the increased risk associated with poor credit scores.
Limited access to premium credit cards: Many credit card providers may not approve applications from individuals with low credit scores. If you do get approved, you may receive cards with fewer rewards and lower credit limits.
Difficulty getting approved for new loans: With a credit score below 700, lenders may see you as a risky borrower and may reject your loan applications. If you do get approved, it might come with higher interest rates, shorter repayment periods, or lower loan amounts.
Limited credit card options: If you have a poor credit score, it can be harder to get approved for credit cards. Even if you do get approved, you might not get as much spending money on the card as you'd like.
Ways to Improve your Credit Score
Here are some simple ways to improve your credit score:
- Pay your EMIs and credit card bills on time. Avoid late payments going forward.
- Check your credit report regularly and correct any errors.
- Pay off your debts instead of transferring them to other accounts.
- Increase the credit limit on your existing credit card if possible.
- Have a good mix of secured and unsecured credit.
- Consider getting a secured credit card, which is backed by a fixed deposit. Using it responsibly can help build your credit history.
- Try to keep your credit utilization ratio low by not using too much of your available credit.
FAQs on Bad Credit score
How can I improve my credit score immediately?
Here are some easy ways to improve your credit score right away:
- Ask to increase the credit limit on your current credit card.
- Try not to use too much of your available credit to keep your credit utilization ratio low.
- Pay off any debts you owe as soon as possible.
- Check your credit report for mistakes and fix them if you find any.
- Avoid applying for too many new credit cards.
- Keep old credit accounts open, even if you're not using them anymore.
What is considered as a good credit score?
A credit score of 750 and above is generally considered ideal by most lenders, including banks and non-banking finance companies.
What is the benefit of having a high credit score?
Many lenders offer better terms to individuals with high credit scores. Having a high credit score not only increases your chances of getting approved for a loan but also makes you eligible for discounts on interest rates, processing fees, and other charges.
What is the difference between a hard enquiry and a soft enquiry?
Hard inquiries occur when lenders check your credit report after you apply for a new credit card or loan. Soft inquiries, also known as credit report checks, are when individuals or organizations check their own credit report to monitor their credit behavior.