Know your credit score and its effect

The repayment capacity of a debtor is measured by the credit score. It indicates the position of the debtor whether he can pay regularly and make the full payment within the assigned time.

Some important factors which determine your credit score are as follows-

• Your outstanding balance
• Payment history
• Related information to charge offs collections and bankruptcies that have been recorded in your credit report
• Your utilized debt amount as compared to your avail credit
• Length of the credit history
• Type of your current credit account

Credit score is just like an indicator of your financial safety. It has been used by the creditors to estimate the repayment capacity of a debtor. Credit score determines whether you are eligible to get a loan or not and the type of interest rate you will be required to pay.

You can improve the low credit score in the following manner

• Make a longer credit history which is always preferable than a shorter one
• Make an early reduction of outstanding balance
• Do not apply for new credit
• Don’t allow creditors to check your credit report frequently

The higher is the credit score the lower is the interest rate. A higher credit score will allow you to enjoy a lower interest rate and will increase the chances of availing fresh credit.