What is a credit score?

A credit score is a number that represents the financial capacity and credit history of an individual or organization. Credit scores are used by financial institutions such as banks and credit card companies to assess the level of risk when granting credit or loans to that individual or organization.

According to Asean Securities Company, a credit score is a three-digit number, typically ranging from 150 to 750. It represents your credit risk level or ability to pay bills. Financial institutions will consider it a deciding factor in whether to approve you for a new credit account or loan. Your credit score can also affect interest rates and other terms on any loans or credit accounts you qualify for.

Regarding credit scoring systems, the company also stated:

From 150 – 321: Very high risk, customer does not qualify for loan.

From 322 – 430: High risk, customer unable to repay debt.

From 431 – 569: Medium risk, customers are eligible for loans but are considering higher interest rates.

From 570 – 679: Low risk, customers are likely to repay on time, meet loan eligibility requirements, and are approved for low interest rates.

Scores from 680 to 750: Eligible for loans, very good score indicating ability to repay on time, low interest rates, and approved high loan limits.

How is a credit score calculated?

Credit scores are typically calculated based on several key factors, including:

Payment history: This includes whether bills have been paid on time or late.

Current debt: The total amount you owe compared to your credit limit.

Credit history: The length of time you have used credit.

Types of credit used: This includes the different types of credit accounts you have.

Number of new credit requests: The number of times you have requested to open a new credit account.

Each of these factors affects your credit score to varying degrees. A high credit score generally indicates good financial standing and lower risk of being granted credit, while a low credit score may make it more difficult to get approved for loans.

How to improve your credit score

When information is updated in a borrower's credit report, their credit score will change and may increase or decrease based on the new information. Here are some ways you can improve your credit score:

Pay your bills on time: When using a credit card, the most important thing is to remember your monthly payment due date. Otherwise, you'll incur interest on the outstanding amount. Furthermore, if you don't pay the minimum amount, you'll face late payment fees.

Don't borrow up to the maximum credit limit: When you open a credit card, you'll be granted a spending limit of 30 million or 50 million VND. One of the factors used to calculate your credit score is how close you are to reaching your maximum spending limit. Therefore, some financial experts advise that people should only use about 70% of their limit to avoid exceeding it. This is also a relatively safe spending level to avoid falling into a situation where you don't have enough money to repay your credit card debt.

Don't apply for too many credit cards: When people don't have enough money to pay off consumer debt or credit card debt, a common trick is to open several new credit cards. This allows them to use the funds provided by the new credit cards to pay off their old debts. This is a way to "cover up" when they don't have enough money to pay off their debts.

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