To determine the credit score, which represents a person’s creditworthiness for borrowing money or using credit cards, banks and non-bank financial institutions (NBFCs) regularly submit data to credit bureaus. When it comes to credit, a credit score of 750 or more is typically regarded as a good score by all four credit agencies (Credit Information Bureau, Experian, CRIF Highmark, and Equifax). High credit scores imply that the candidate has shown prudent credit behaviour. Find out what advantages having a good credit score might provide you.
Before accepting a loan or credit card application, all banks and lenders do a credit check on you. It is thus necessary to have excellent credit to get a loan or credit card approval without difficulty. Additionally, having a good credit score has several additional advantages.
What is a credit score?
The number is made up of three digits and summarises your financial history. Your credit score is the most important factor in determining whether or not your loan applications will be approved. Typically, your credit score is calculated based on your history of credit payback. Consequently, your credit score is influenced by various variables, including how prudently you use your credit cards and your payback history.
Having good money management skills and making regular payments on your bills will result in a high credit score. As stated, your credit score is a reflection of your ability to pay your debts on time and on the whole, such as loan EMIs and credit card bills. Financial organisations, such as banks and mortgage firms, use your credit score to determine whether or not to provide you with a loan or credit line of credit.
A CIBIL score is a three-digit numeric summary of a borrower’s credit history calculated by the credit bureau. Credit scores serve as a representation of a person’s or business’s credit history and profile. In addition to other considerations, the score is generated based on an individual’s historical credit behaviour and credit utilisation habit.
The most significant advantage of having a high credit score
In India, banks and lenders have begun to provide loans based on each applicant’s risk profile. As a result of this decision, applicants with high credit scores may now take advantage of reduced interest rates, resulting in cheaper loan costs. Because even a half percentage point decrease in interest rates may have a substantial influence on loan EMIs and, as a result, lead to considerable financial savings, it is important to consider this option. So having a high credit score has the added advantage of making loans and other types of borrowing more affordable for you.
A rapid process for approving loans
A good credit score is a reliable measure of a person’s creditworthiness. In this way, banks and lenders can make rapid judgments on loan applications, which is beneficial for those experiencing financial difficulties. Getting cash quickly is made possible by having good credit ratings.
A stronger position in negotiations
A creditworthy candidate can pay back loans and credit card payments on time. Lenders usually prefer to lend to creditworthy applicants. A positive credit score distinguishes a customer as an attractive borrower, providing them with an advantage over other applicants. The ability to quickly negotiate with lenders for better loan conditions and cheaper interest rates is also beneficial to borrowers. Additionally, borrowers may petition the lender to waiver the loan processing charge in particular instances.
A higher loan amount
For financial institutions, higher loan amounts imply a greater chance of default. This is one of the reasons why lenders may insist on the borrower having a high credit rating. With a high credit score, the lender will be confident in the borrower’s ability to repay the loan on time, and they may be ready to issue a larger loan.
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Higher Credit card limits
A person’s credit card limit is often determined depending on their credit score and current earnings. It is simpler for a credit card provider to increase a customer’s credit limit when they have a strong credit score. Because a high credit score implies that the credit card user is responsible for their credit, credit card providers are less concerned about the risk associated with the card.
Availability of pre-approved loans
The ability to get a personal loan quickly when required is made possible through pre-approval. These loans, on the other hand, are not accessible to everyone. To send out a pre-approved offer, banks do extensive due diligence, which may include checking for a decent credit score, checking the applicant’s account balance, and so on. A strong credit score increases your chances of being authorised for a pre-approval loan from a bank or other lending institution.
Better chances of availing a longer loan tenure
A longer loan duration leads to reduced monthly instalment payments, which might assist in budgeting for the month ahead if done correctly. On the other hand, a lengthier loan duration may be riskier from the lender’s standpoint. A strong credit score can make it much easier to get approval for lengthier loan terms, which will lower your monthly payment load.
How to improve your credit score?
Do you have a bad credit score? Don’t be concerned. A poor credit score is not the end of the world, particularly since various options are available to evaluate your financial behaviour and raise your credit score. Listed below are a few pointers to help you get back on track and improve your credit score.
- It’s usually a good idea to pay your payments on schedule. Apart from helping you get a high grade, it will also help you stay on track with your money.
- As an alternative to using up your full credit limit, consider confining yourself to only around 30% of your total credit limit.
- Never allow your accounts to slip between the cracks. This will assist you in avoiding default on your loan.
- Examine your credit report and notify the appropriate authorities if there are any errors. Keep an eye out for expenses incurred due to identity theft or credit card fraud.
- Consider your options carefully before cancelling your previous credit cards since doing so suggests a decrease in your financial activity, which may harm your credit score.
Slowly but surely, you may improve your credit score. To be eligible for credit, you need to maintain excellent credit behaviour, which will help you get credit and reward you with pre-approved loan offers, etc. Credit ratings are becoming more important in India. However, obtaining a high credit score has numerous additional advantages. You can get more financial goods and services with a strong credit score. If your credit score is low, you should work on it as soon as possible.