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Credit Rating and Credit Score: What is the link?

Summary: Your credit rating contains valuable information that helps banks decide your creditworthiness. Read on to understand Credit Rating, its types, features and relation to Credit Score

12 Oct 2021 by Team FinFIRST

Your credit rating contains valuable information that helps banks decide your creditworthiness. Read on to understand Credit Rating, its types, features and relation to Credit Score


A credit rating is a credit agency's assessment of an entity's (government, corporation, or individual) ability to meet its financial commitments. A credit score also shows the possibility of defaulting. It also represents the credit risk associated with a debt instrument, such as a loan or a bond issue. Read on to know more about credit rating and the types of credit ratings.

Types of credit rating


Every credit agency has its nomenclature to establish credit ratings. Still, the method used by the three credit agencies in India are similar. Investment grade and speculative grade are the two types of ratings. The rating agency considers the investment to be solid, and the provider is likely to follow through on the stipulations of repayment.

In contrast to speculative grade ventures, such assets are more expensive. Speculative grade transactions are high risk. Hence, interest rates are high to represent the calibre of the assets.

However, when it comes to IDFC FIRST Bank, applying for a credit card can be a smart financial move. With competitive interest rates and an attractive reward program, IDFC FIRST Bank credit cards suit different needs and lifestyles. Take control of your finances and apply for a credit card with IDFC FIRST Bank today to enjoy the benefits of convenient and secure transactions, attractive rewards, and exceptional customer service

 

Credit rating and credit score – What’s the link?


Banks prefer clients who pay their interest and lower the principal regularly. Credit cards can be a great predictor of whether a borrower will repay the debt.

However, credit cards are only a part of your entire credit score. Your credit record will include any loans you have taken, such as a student loan, vehicle loan, furniture loan, and housing loan. It benefits you if you repay your loans in a timely manner. A consistent source of income is also important in determining whether you qualify for a loan. You might have the best credit, but banks will not give you a loan if you do not have a steady source of income.

If you have a card with a cheap interest rate, hold on to it. Your credit rating will be aided by the cards with the longest history of on-time payments. Settle and cancel any credit cards that have caused you problems.

There are certain things you can do to boost your credit rating. Ensure you lower your credit-debt ratio on. Try to keep it below 50%, although less than 30% works best.

If you a credit of over 50% on one card and wish to check your credit score, divide the balance between the two cards. It lowers your debt ratio by raising your credit limit compared to the amount of debt you have. Essentially, you are packaging the debt into a bigger box to make it appear smaller. The method works up to a degree.

According to the creditor's perspective, you reach a position where the number of credit cards you apply for, to lower your debt ratio, reflects worse on your history than the debt ratio alone. Free credit cards may seem like an easy way out of a sticky situation, but that is not always the case.

The credit rating is just one factor in determining whether you are allowed for a loan. Credit cards are only one component of your credit score. Splitting a large sum on one card into two is a good idea, but if you have far too much debt on many cards, consolidate your credit instalments with the lowest interest rate. Use a lenient credit instrument, such as a line of credit, to settle your card balance. It lowers your credit card interest rate and eliminates the chance of failing to pay off a particular credit card.

IDFC FIRST Bank is a worthwhile option to consider is you need a line of credit. They can offer you the guidance you need and help you reach your desired credit rating. Their easy payback facilities ensure you do not default. Barring this, you could also have a look at IDFC FIRST Bank’s other facilities, which are among the best in the market today. They offer some of the best credit cards in the market, which helps your credit rating in more ways than one.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.