Generally, those with a credit score of 750 or above have higher chances of loan approval. It is so because lenders consider them financially more disciplined, and the ones with a lower risk of credit default.
Industry experts point out that millennials are seen to indulge in lifestyle spending more, hence, for them maintaining a strong credit score is crucial to avail loans and credit cards in the future with better terms and conditions.
Here is how a strong credit score can improve your financial health;
- You get higher loan eligibility: Lenders take out credit reports of applicants to evaluate their creditworthiness, before approving a loan. The one’s with a higher credit score of 750 or above have higher chances of loan approval and are also on better terms. Those with a lower credit score are usually turned down by banks as they are viewed as riskier prospects. Hence, people with lower credit scores find it challenging to get their loans approved by lenders.
- Get lower interest rates on loans: Another advantage of having a higher credit score is getting lower interest rates as most lenders follow risk-based pricing for setting the interest rate of applicants. Lenders try to entice applicants with higher credit scores, lower interest rates as such applicants involve lower credit risk. On the other hand, experts point out those with lower credit scores are charged higher interest rates, to compensate for the higher credit risk involved in lending. Hence, industry experts say especially, millennials should compare loan rates offered by as many lenders as possible before opting for a loan, as risk-based pricing models can vary across various lenders.
- Get your processing charges lowered: Along with lower interest rates on loans, few lenders also reward their applicants with higher credit scores. For instance, they either waive off or reduce loan processing charges. Processing charges can come to a substantial amount, especially in the case of big-ticket loans, hence, a waiver or reduction of such charges can mean a significant reduction of cost of credit.
- Pre-approved loans: Borrowers with higher credit score also gets pre-approved loans in advance. Based on one’s credit score, traditional lenders and online lending platforms extend pre-approved loans and credit card deals to people. Experts say these offers and deals usually come with better product features, along with a low-interest rate and quick processing time. This way the borrower also has the chance of negotiating with other lenders to get better loan deals.
- Increased chances of credit card approval: Having a strong credit score also means higher chances of credit card approval. Lenders or credit card issuers consider credit scores as one of the main factors while evaluating an application. Hence, experts say applicants with good credit scores have higher chances of multiple credit card approvals.