The average credit score of Indians is 715 as of FY22. According to a study, around 63% of the respondents scored between 300 and 747. Although a credit score of 715 is good enough to get loans, what about the elusive score of 850? Despite being rare, getting a perfect credit score is possible, but maintaining it will be an even more significant challenge. (Source:Livemint)
Let’s see what a credit score for a Personal Loan looks like, why experts deem a score of 850 excellent, and what people with a perfect score have in common.
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What Does a Credit Score of 850 Mean?
A credit score is a 3-digit number to measure an individual’s creditworthiness. Credit bureaus like Experian calculate it based on the information about their credit accounts. Ranging from 300 to 850, 300 is the lowest and 850 is the highest.
The terms will be more complex if one applies for a Personal Loan without a credit score. Similarly, a salaried professional with a fair credit score (range 580–669) may find it difficult to get instant loan approval from traditional financial institutions. In contrast, they may get consideration from new-age lending institutions like Clix Capital, who consider a score of 630 for Personal Loans.
However, if a person with a good credit score applies for a Personal Loan, they get better terms and conditions than others due to the lower risk involved. That is why people want a credit score of 850 to get a perfect score. Let us see what a high credit score means for a credit seeker.
- A high credit score of 850 gives faster access to credit on much more favourable terms.
- Lending institutions will approve the loan or credit card application much more quickly.
- The lending institution will offer a loan at lower interest rates since they feel confident about timely repayment.
- Individuals with a high credit score may easily opt for a longer loan tenure.
- A credit score of 850 makes an individual eligible for a more considerable loan amount, again due to the lending institution’s confidence in full repayment in time.
Therefore, reaching a score of 850 would be very helpful before applying for a loan to get the best terms and conditions.
What Makes A Good Credit Score?
A good credit score tells a lending institution that the individual is a low-risk borrower. It indicates that they are highly likely to pay their debts fully and on time. Lending institutions generally provide the lowest-interest loans to low-risk borrowers. A credit score of 850 means they are creditworthy borrowers who can be trusted for repayment. An individual’s credit score for a Personal Loan is based on their credit history. Here are a few factors credit bureaus use to calculate people’s credit scores:
- Credit mix in the portfolio
- Missed payments on EMIs and credit card bills
- Current financial obligations in relation to their income
- Outstanding amounts
- The average age of accounts
- Newest accounts and credit queries
These are the credit score ranges considered by Experian:
- 300 – 579: Poor
- 580 – 669: Fair
- 670 – 739: Good
- 740 – 799: Very Good
- 800 – 850: Exceptional
As you can see, a credit score of 850 comes under the exceptional category. So, individuals with this credit score are among the most creditworthy people. If an individual applies for a Personal Loan without a credit score or with a low credit score, it could prevent them from numerous opportunities.
Common Traits of People with a Perfect Credit Score
Building a perfect credit score of 850 requires consistent credit practices. Here are some common things people with an ideal credit score do:
- Make All Their Payments on Time
Payment history is extremely important for an individual’s credit score for Personal Loan. Paying loan EMIs and credit card bills in full and on time positively impacts the credit score.
- Don’t Borrow Loans They Cannot Afford to Repay
That is obvious, but many people miss this simple logic and end up in a financial strait. Many take Personal Loans to cover their big-ticket expenses but missing their EMIs is disastrous for their credit score. Credit card debt is another worst thing they can get into since it affects the score more than other debt types and has higher interest rates to pay.
Therefore, people with a credit score of 850 have one thing in common: they never take a loan they cannot afford to repay. They create a repayment plan first and then apply for a loan.
- Use Their Credit Cards Responsibly
People with excellent credit scores always pay their credit card bills on time and never carry massive balances month after month. They prioritise paying off their credit card bills in full each month. They use it and make the payment when it is due. Contrary to popular belief, carrying over a balance will not increase the benefit.
- Build a Diverse Credit Mix Over Time
Having different types of credit lines under the name benefits the credit score. People with a high credit score have both instalment and revolving credit, which increases their credit score by a few points.
However, that does not mean you must go out and get a home loan, mortgage loan, and Personal Loan simultaneously. Multiple loan applications simultaneously will hurt the credit score rather than help it. Instead, taking different types of loans one at a time is an excellent strategy that most high-score individuals use.
- Retain Their Old Credit Accounts
Rather than closing them, people with high credit scores keep their unused credit accounts and cards open. It helps them have a more extended credit history and a bigger credit limit. Credit scoring models reward them for having long-standing credit accounts and maintaining a lower credit utilisation ratio. Regarding credit cards, the credit utilisation ratio truly matters. It is the balance divided by the available credit limit. High-score individuals keep their credit utilisation ratio under 30%.
What is a perfect credit score for a Personal Loan? Those with an excellent credit score of 850 have exceptional credit-handling abilities, which is just as good for their credibility. Once the credit score reaches 850, applicants receive all possible benefits of having an excellent credit score. So, there are several reasons to push yourself toward earning an exceptional credit score of 850.
Devanshu Shrivastava has over ten years of experience in the areas of credit, personal loans, business loans, SMEs,s and financing. He has a wide range of exposure in fintech, SaaS, banking, insurance, and financing. He has successfully delivered multiple projects on go-to- financial strategy, analysis, business expansion, and others. He loves to help others to get better financial stability and standards.