Have you heard of credit score? Do you know what it is and how it can influence your financial health?
I’ll give you an example: Imagine you are in need of a loan, you do some research and get a rate of 5.95% per month at your bank.
A friend with the same salary as yours, the same family configuration and perhaps a similar pattern of spending goes and gets a rate of 3.5% per month from the same bank. I wonder why?
There are some hypotheses, but in a very short way, your friend offers a lower risk of default than you . The bank understood that he is more likely to repay the loan he took than you are.
And how can the bank assess this default risk? One of the forms that has been used the most is the credit score and that is what I am going to talk about in this text.
What is Credit Score?
Bringing the definition of Sorasa Consumidor , credit score is: “the result of payment habits and the relationship between the citizen and the credit market”
Each person is scored according to some criteria, such as: payment of their bills on time , history of debts, financial relationship with companies and updated registration data.
The higher the credit score, the greater the chances of the person paying their financial commitments in the next 12 months.
The score ranges from zero to 1,000 points and the higher it is, the better.
In the example I created at the beginning of the text, your friend’s score could be 850 and your 650, that is, with 200 points less in your credit score, you offer a greater risk.
- up to 300 points there is a high risk of default;
- medium risk between 300 and 700; and
- low risk for those who accumulate scores above 700 points.
What is the Credit Score for?
First of all, to show financial institutions and banks how you have handled the credit you have received.
Banks usually look favorably on those who have borrowed and paid on time or who do not use overdraft or revolving credit cards often.
We currently also have some companies called fintechs in the area of loans that use credit scores a lot.
In their credit assessment, these companies look for your score to see if you can be a good payer and lend money or refuse if they assess that the risk of default is high.
How to do to increase it?
Raising your credit score is not difficult, but it will require some attention and a little dedication from you.
Be aware of the following factors:
- Pay your bills on time. And to help you download our Remuneration Map ;
- Avoid entering the overdraft or do not enter at all to have a great score;
- Avoid taking too many loans a year. Do you know that loan to pay off another loan? This drops your score a lot;
- Have your registration updated with Sorasa Consumidor;
- Have your name cleared. Negative or “dirty” name also lowers your credit score a lot;
- Pay your credit card bills in full; and
- Make your Positive Registration also on the Sorasa Consumer website.
If you are in need of a loan or know someone who is considering getting one, keep an eye on your score.
Try to keep it as high as possible for when or if you need to use some type of credit, you have interesting options for your pocket.