What is a credit score?

A credit score is a number that represents the financial capacity and credit history of an individual or organization. Credit scores are used by financial institutions, such as banks and credit card companies, to assess the risk of granting credit or loans to that individual or organization.

According to Asean Securities, a credit score is a three-digit number, usually between 150 and 750. It represents your credit risk or ability to pay bills. Financial institutions will consider it as a factor in deciding whether to approve you for a new credit account or loan. Your credit score can also affect the interest rate and other terms on any loans or other credit accounts you qualify for.

Regarding credit scores, the company also said:

From 150 – 321: Very high risk, customer is not eligible for loan.

From 322 – 430: High risk, customer is unable to repay debt

From 431 – 569: Average risk, customer is eligible for loan but consider high interest rate approval.

From 570 - 679: Low risk, customer has the ability to repay debt on time, meets loan conditions, and is approved for low interest rates.

From 680 – 750: Qualified for loan, very good score with ability to repay on time, low interest rate and approved for high loan limit.

How is credit score calculated?

Credit scores are typically calculated based on several key factors, including:

Payment history: Includes on-time or late bill payments.

Current debt: The total amount you owe compared to your credit limit.

Credit history: How long you have used credit.

Types of credit used: Includes the different types of credit accounts you have.

Number of new credit requests: The number of times you have requested to open a new credit account.

Each of these factors affects your credit score to a different extent. A high credit score generally indicates that you are financially sound and a low risk when it comes to credit, while a low credit score can make it more difficult to get approved for loans.

How to improve credit score

As information is updated on a borrower's credit report, their credit score changes and may increase or decrease based on the new information. Here are some ways you can improve your credit score:

Pay your bills on time: When using a credit card, it is important to remember your monthly payment due date. Because if you don't, you will have to pay interest on the unpaid amount. Moreover, if you don't pay the minimum, you will have to pay a late fee.

Do not borrow up to the maximum credit limit: When opening a credit card, you will be given a limit of 30 million or 50 million VND. One of the factors in calculating credit scores is the level of approaching the maximum limit. Therefore, some financial experts advise that people should only use about 70% of the limit so as not to affect this number. At the same time, this is a fairly safe spending level to avoid falling into a situation where you do not have enough money to pay off your credit debt.

Don’t apply for too many credit accounts: When you don’t have enough money to pay off your consumer debt or credit card debt, many people have a trick: open a few new credit cards. This way, they can use the money provided on the new credit card to pay off the old one. This is a way to “make up for” the lack of money to pay off the debt.

However, it can affect your credit score by opening too many credit accounts in a short period of time.

Cong Hieu (synthesis)

Source: https://vtcnews.vn/diem-tin-dung-la-gi-ar907119.html