A credit score is your financial identity. It is a three-digit number that ranges between 300 and 850, and summarises your credit history. Your credit score is calculated based on your past borrowings and repayments. It is a very important metric that’s checked every time you apply for a loan. Banks will look up your credit score to ensure you have a strong credit history without any previous loan defaults.
Credit bureaus are mandated to maintain an individual’s credit details that are shared with all the banks and financial institutions on demand during the evaluation and sanctioning of different types of loans.
Adhil Shetty, CEO, Bankbazaar.com, says, “A poor credit score can reduce your chances of getting loans. Even if you get the loan, it is likely to be on unfavourable terms. Improving a poor credit score can take months, if not years. A poor credit score would also cause lenders to doubt your credit health. On the other hand, a good credit score means quicker and hassle-free approval of loans and credit cards, lower interest rates, more negotiating power, and higher loan limits.”
Also Read: Buying a used car? Tips to get a loan
Let’s look at the top 3 benefits of a good credit score:
Low Interest Rates: Interest rates are directly tied to your credit score. So, if you have a good credit score, you will be eligible for the more lucrative interest rates that banks and NBFCs offer to eligible candidates. Your credit score can help you get the lowest interest rates on any loan.
Better Chance for Credit Card and Loan Approval: Poor credit history can make applying for a new credit card or a loan difficult. An excellent credit score doesn’t guarantee approval; however, a good credit score increases your chances of being approved for new credit. In simple words, you can apply for a loan or credit card confidently when your credit score exceeds 700.
Negotiation Rights: A spotless credit history gives you bragging rights and something additional to be proud of, especially if you’ve had to work hard to take your credit score from bad to good. But apart from that, it also makes you a prime candidate for lenders to issue a loan, which gives you better ability to negotiate.
If your credit score is poor, you should be extra cautious and promptly pay off your credit card bills and other utility bills so that the credit report does not show any defaults. Avoid applying for too many loans at the same time. Keep checking your credit score monthly to know what is wrong with your credit history. Be disciplined and gradually work on your past mistakes to improve your credit score.