Credit Score and its Importance in the US

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    Refresh your memory with those days where we get judged in schools and colleges by grades and numbers. While it was a moment of pride to patricians, for the rest of us, it happened to be a depressing period of trial. On similar grounds, a credit score is yet another number which is used to assess the creditworthiness of a person. In other words, it expresses how likely a person is to repay his/her debts. In the US, it also comes under the name FICO score, which ranges from 300 to 850 points in the order of the lowest to the highest. A score of 750 or more is considered good. It goes without saying that lenders are always in a state of risk as they invest a huge sum on borrowers. As a measure of security, they would want to know the credibility of a person in repaying the loan.

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    However old and wise we may get; the very word ‘report’ leaves us in a bundle of nerves. Credit reports are generated based on the consideration of many factors including a person’s financial history. These scorings are issued by three major credit bureaus namely Equifax, TransUnion and Experian. While the absolute method of calculating this score remains a secret, a few other factors include the payment history, debt burden, account balances, length of credit history, credit mix etc.

    But should you care? Yes, and here’s why:

    Credit score has its influence in various spheres of life. Recruiters all over the world, especially in the US, conduct a background check on your credit history before hiring. Despite having a killer GPA and an impressive profile, bad credit score decreases your chances of getting hired! So, please pay attention!

    Also, most of the landlords cross-check your credit score before leasing out an apartment. Having a decent score gives you an advantage in securing a good apartment. Of course, it also comes into play when making bulky purchases like renting a car or buying a cell phone – be it the approval of a loan or the calculation of an interest rate, your credit score plays a vital role. A solid score makes it very likely for you to get your loan and that too with a low rate of interest.

    So, how can you maintain a good score or improve a poor one?

    Although it is not possible to effect an immediate improvement in your credit score, a few hacks could help you increase it gradually.  

    • Sign up on a Credit Score tracking portal. Credit Karma is the best bet.
    • Timely repayment of loan and bills
    • Using your credit cards less or getting a higher credit limit
    • Having a low number of credit accounts
    • Clearing your credit card dues on time
    • Analyzing your credit report periodically – and acting on any worrying trends
    • Getting rid of inactive credit cards

    It is surprising that even trivial occurrences will affect your credit score badly. You might have to pay the annual fee of a debt that you never know existed. Or it can be a clerical error in your report that you are not aware of. You never know. These reasons might contribute to the denial of an important loan or a mortgage owing to your bad impression by the lending agencies. In short, constant monitoring and consistent repayment account for a healthy score. 

    Also Read - "How Can I Get an SBI Education Loan for Studying Abroad ?"

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