When to borrow and how credit scores help in borrowing

By: |
January 29, 2021 11:48 AM

Borrowing provides lump sum money to buy a product when sufficient fund is not there in the hand of a customer.

borrowing, home loan, education loan, credit score, credit card, future earnings, creditworthiness, how credit scores help in borrowingIt's an ideal situation to lead a debt-free life as it provides peace of mind.

Borrowing provides lump sum money to buy a product when sufficient fund is not there in the hand of a customer. However, it’s a commitment to use future earnings to buy a product today. As future earnings are at stake and any derailment in employment may cause difficulty in repaying the borrowed money, one should borrow only if it’s absolutely necessary or to create wealth or to enhance earning capacity.

When you may borrow

You may borrow to invest in assets that create value – like taking a mortgage loan to buy a house – or to generate returns – like taking loan for capacity expansion or taking education loan for funding higher education for self/children etc.

You should avoid taking loans to buy FMCG products or depreciating assets just for luxury – like borrowing for personal expenditure or using credit card irresponsibly to fund expenses etc.

It’s an ideal situation to lead a debt-free life as it provides peace of mind. However, you should maintain your creditworthiness with a good credit score, so that you may get a loan easily at the time of need.

Credit Score

A Credit Score is a three digit number – ranging between 300 and 850 – issued by a Credit Information Company that indicates a borrower’s creditworthiness and is typically based on his/her credit history and other factors.

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Credit Score of a borrower comes along with a Credit Information Report and it would be higher in case the borrower has always repaid loans taken from banks/financial institutions on time.

Importance of Credit Score

Higher credit score of a borrower means more creditworthy and more responsible the borrower is.

Moreover, along with other factors, banks / financial institutions also ascertain/check the credit score and credit history of borrowers while sanctioning loans.

So, all the other things remaining the same, borrowing would be relatively easier for a borrower with a higher credit score and that too at a lower rate of interest.

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