A credit score is the major factor that determines the creditworthiness of the individual. For every financial step and every financial decision, the banks, as part of their due diligence process, gauge the creditworthiness based on credit scores. All the loans, credit card payments, defaults and much more make up the credit history from which credit score is calculated using algorithm. Therefore, credit score reflects the extent of the probability of an individual.
An individual’s credit history is submitted to credit bureaus by banks and financial institutions on a monthly basis. These credit scores are the deciding factor for banks to lend loans and also to decide the terms and conditions on which the loans are to be given. Banks prefers the borrowers with low outstanding balances, long credit history and high credit score. A good credit profile puts the borrowers in a position to bargain for better conditions to draw loans at best available rates. Hence, it can be rightly said, better the credit score, better the interest rates.
The different interest rate regime based upon the credit score of the individual is like rewarding customers for being financially disciplined. So, an individual with a better score get better interest rates and vice versa for lower credit score. To get loans at better interest rates, one must monitor his credit profile and make efforts to maintain a good credit score.