As you gradually begin to understand the concepts of financial wellness score and credit score, you will surely encounter phrases like ‘low credit score’, ‘good credit history’, ‘bad financial health’, ‘financial well-being’ a lot.
But the key to making smart financial decisions is understanding the different components that are considered while calculating your scores and knowing which ones will help you improve your finances in the long run.
So let’s dive right in.
As you may already know, a credit score is a measure of your ability to return any loan or credit.
In other words, a credit score is intended to measure your credit-worthiness. It is a three-digit number ranging between 300-900, 900 being the highest. Which means something between 700-900 is a very good credit score.
Components of Your Credit Score
Payment History: This is the one of the most important factors to impact your credit score. If you miss your EMIs, delay the payments or have late payment charges, it will bring your score down.
Credit Utilisation Ratio: It is the amount of credit you use against the total limit of credit you have. Ideally you should use 40% of your credit limit. A low credit utilisation ratio means you can manage your credits. A high credit utilisation ratio brings down your credit score.
Credit History: A long credit history is beneficial. It gives the financial institution an idea on how you have managed your credit. An inside tip is to keep your old credit cards open, as they have a long credit history as compared to the newer ones.
Mix of Credit: It is advisable to have a good mix of secured and unsecured loans. A home loan is a secured loan and a credit card an unsecured loan. A good mix of accounts helps increase your credit score.
Apart from these, there are other factors such as how many credit applications you have made in the recent past, that also have an impact on the calculation of your credit score.
Financial Wellness Score
Your Financial Wellness Score is a unique score that determines how healthy your current finances are based on criteria such as your monthly savings, budget, EMI repayments, and spending habits.
Know Your Financial Wellness Score on Wizely
Components of Your Financial Score
1. Your Savings Habit
We ask you two main questions to assess this criteria:
- Do you have an emergency fund? If yes, how much is it?
- Do you have a retirement plan?
2. Your Spending Habit
This criteria mainly has two assessment sub-criteria:
- Do you follow a monthly budget?
- Do you adhere to your budgets ?
- Are you paying back all your EMIs on time?
Based on these two criteria, you will get a Wizely score out of 1000.
How is Wizely Financial Score Calculated?
The Financial Wellness score will be:
An index out of 1000 and will update based on user behaviour at regular frequencies (every day/week). There are two components to the score:
- The user’s current financial habits (as discussed above)
- Whether or not essential requirements & tasks are fulfilled across the pillars
So, while your credit score depends solely on your credit activities, your financial score depends on your overall financial activities. Having a good credit score doesn’t necessarily mean that your finances are in great shape.
We will dig deeper into why a financial score is more important when it comes to your finances in our next blog.
Follow our 'Financial Score vs Credit Score' Blog Series:
Credit Scores Don't Measure Your Financial Health - Here's Why
Why Wizely's Financial Wellness Score is Important For You