Credit scores are a financial indicator and play a crucial role in an individual’s or organization’s ability to access loans and credit. They represent a person’s or entity’s financial health and are used by financial institutions like banks and credit card companies to assess loan and credit eligibility.
According to Asean Securities, credit scores typically range from 150 to 750. This three-digit number carries weight and can make or break your financial aspirations. It reflects your bill payment behavior and is a deciding factor for financial institutions when considering your application for a new credit account or loan. Moreover, your credit score can influence the interest rates and terms of any loans or credit accounts you qualify for.
Illustration by Home Credit
Breaking down the credit score brackets, Asean Securities explains:
150–321: Very high risk, indicating the customer is ineligible for loans.
322–430: High risk, suggesting the customer lacks the capacity to repay debts.
431–569: Medium risk, where customers are eligible for loans but are subject to higher interest rates.
570–679: Low risk, indicating customers can repay debts on time and qualify for loans with lower interest rates.
680–750: Excellent score, qualifying customers for loans with favorable terms, including lower interest rates and higher credit limits.
How Are Credit Scores Calculated?
Several key factors influence credit score calculations, including payment history, current debt, credit history length, types of credit used, and new credit applications. Each factor carries a different weight, and a high credit score generally indicates strong financial health and lower lending risks. Conversely, a low credit score can make it challenging to secure loans or favorable financial terms.
Improving Your Credit Score
As borrowers’ credit reports are updated, their credit scores fluctuate. The following strategies can help improve your credit score:
Timely bill payments: When using credit cards, staying on top of monthly payments is crucial. Missing payments incurs interest charges, and failing to meet the minimum payment results in late fees.
Avoid maxing out credit limits: Financial experts advise using only around 70% of your credit limit to maintain a healthy credit score. Staying within this range demonstrates prudent financial management and safeguards against overspending.
Limit new credit applications: Applying for multiple credit cards in a short period can negatively impact your credit score. While it may be tempting to open new credit accounts to manage existing debts, doing so can backfire and harm your financial health.
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