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How do Credit Scores Work?

There is a vital role of credit score in impacting the financial life of the user. It helps the lenders in decision-making, whether they should offer credit to the users who apply for a loan or not. In case, if the credit score of a user is below 650, then usually the applicant would fall in the category of subprime borrower i.e., where the credit risk is high for the lender. Because of high risk and some negative factors in the credit reports, generally, such loans are ende up with a comparatively higher rate of interest.

On the other hand, if the credit score of a user is 650 or above then it is regarded as good. With a good credit score and no defaults in the credit report, there are high chances of loan application approval with competitive interest rates. When the credit score is more than 750, then it is considered an excellent score.

Nowadays, it is so easy to check credit score online. Many websites offer free credit score check services where users can check their credit score and understand what improvements they need to make in order to boost their credit score for getting quick approvals on loan applications.

Understanding the Credit score range

Here is the table to help users understand what their credit scores depict:

Score Range	Implication
Applicable (NA) / No History (NH) / -1	If the credit score is very short or not descriptive, then, in that case, the score is not quantifiable and it will appear as NH or NA when the user performs a free credit score check
300-549	A credit score falling in this range is not considered ideal and there are high chances that the loan application would be rejected as the scores reflect a lack of reliability
550-649	A credit score between this range is regarded as an average score. To get approval on a sizeable loan with minimum restrictions, a user must try to improve the credit score
650-749	This credit score range indicates that the users are the potential customers to whom loans can be granted as there is no or very minimum issue identification in the credit report of the applicants.
750-900	People with scores of 750 or above are the most potential customers for banks and NBFCs as their credit reports are free of any defaults and seeking their repaying ability, the risk for the lenders is quite low.

When you get to know about the credit score range, it is easy to understand in which range your score falls. After you perform a free credit score check, you can decide how you want to go ahead with the loan application, i.e. if your credit score is good you can apply for a loan and if it is slightly less, you can try ways to improve it.

How to improve a credit score?

Here is the table to help users understand what their credit scores depict:

• Timely Payment of Bills

  People seeking home loans need to pay their bills on time as it can bring an obvious difference in their credit score.

• Not to close or de-activate any Credit Card Account

  Some people have credit cards but they do not use them. In that particular case, people should not close or deactivate their credit card accounts, rather, they must stop using these credit cards. Even to improve scores, they must split their expenses evenly between two cards. It will help in decreasing the card utilization rate.

• Increase the Credit Line

  In case the users have a credit card account, then they must try to get a credit limit increase. If the account holds good standing then the credit limit can be increased. However, the users must not spend this amount as it will help in keeping the credit utilization rate low.