Last Updated on March 5, 2023 by Tabraiz
For all of you out there, when it’s about looking after your finances, it generally is a tricky activity. We as a generation at present are more of a spend than save, and hence, whenever money is discussed, it does not go down well. Once you begin earning money, i.e., become financially stable, you must concentrate on ways to maintain a strong credit score.
Read on here, and we can help!
A credit score is nothing but a 3-digit representation of your credit behaviour that reveals to lenders about your loan repayment history. The credit score factors in your past repayment behaviour and assists lenders in making a proper decision. If you apply for a home loan, student loan, business loan or car loan, the lender might use this score as a determining factor to understand your eligibility for a loan. Based upon their scrutiny, the lenders may either accept your loan application or reject it. Thus, it is important for you to know how to read CIBIL report, and in case your CIBIL score, i.e., your credit score, is low, then how can you improve your score for a better CIBIL report?
The CIBIL score ranges anywhere between 300 and 900, wherein 300 is the lowest score, and 900 is the highest score in the CIBIL score range. Note that, for a better score, your score must be inclined towards 900; the more inclined towards 900, the better your chances of getting loan application approval. Note that, In India, as there is a very restricted population who avail loans or any credit option, the average score lies anywhere from 640 to 690, which is satisfactory and cannot be termed as good. Credit bureaus such as Equifax, CRIF High Mark, Experian and CIBIL compute your credit score on receiving details from your lenders and creditors about your behaviour with credit. In general, you must try and maintain a good credit score of 750 and above if you are seeking to avail of a credit option in the future like a credit card, home loan, personal loan, or car loan.
From the above, now it must be clear to you how necessary to maintain a good credit score is. Not having a good credit score can practically take a toll on your financial life. Thus, if you want your life to be smooth and easy, save yourself from falling into debt traps and focus on building a good credit score through healthy credit behaviour. Healthy credit behaviour means repaying your credit card dues and loan EMIs in full and on time, maintaining a lower credit utilization ratio (CUR) of under 30 per cent, maintaining a balanced mix of credit, avoiding multiple credit applications in a short time span, etc. If improperly dealt with, here are specific things it may cause –
Credit application disapproval
A poor credit score can straightaway result in loan disapproval, no questions asked. A bank lender will never endow you with any finance if your credit score does not show your worthiness to repay. Even if you are given approval, the rate of interest charges may be higher.
Higher insurance premiums
If you hold a low CIBIL score, chances are that your insurance premium would be way higher as compared to others.
Also Read: How to Read CIBIL Report?
Your dream home may remain a dream.
A home loan is a big-ticket deal and requires a lot of money in the form of a down payment to apply for the loan, as well as needs you to stay committed with timely EMI repayment. Do you seriously think that a bank would endow you with all the funds with a score of just, say, 400 or below? Just give it a thought.
Can impact your payments
When you constantly have low credit scores and do not make your repayments on time, the bank may lower your credit card limit.
Can impact your job aspirations
Currently, there are a handful of employers who tend to review your credit score to select you for a specific designation or job role. Thus, if your score is low, it may determine you are less worthy of handling the loan as well as a job role.
While a low credit score may negatively impact you, maintaining a strong credit score is not a tough job, after all. Just follow healthy credit behaviour, and your score will keep improving.
What does your score assist you in understanding?
Your score is nothing but a snapshot revealing your credit health. Read on to know what your score assists you in knowing –
Assist you in understanding your present credit status
When you review your score and report the same, it allows you to know where you stand, how you are doing and where you must concentrate on. A credit report is just a summary of your current as well as past credit transactions. Reviewing your credit report periodically even assists you in figuring out any discrepancies that might have reduced your credit score.
Assist you in getting prudent offers on credit cards and loans
With a strong score, you become eligible for the best loan and credit card deals and offers. To fetch the best deals and offers on the credit options, you must maintain a credit score of 750 and above.
Benefits of a good credit score
Having a good score provides you with several benefits over those with low or no credit score. Read on here to know the benefits you are entitled to if you have a strong credit score –
Lower rate of interest and better terms and conditions on credit options
One of the crucial benefits of holding a strong score is that lenders may provide you with a credit card or loan at a lower rate of interest. Also, you can avail of other benefits like discounts or waivers on processing charges and eligibility to avail of higher loan proceeds.
Ameliorate your chances for loan and credit card approval
If you have a good credit score, you will be looked upon as low risk, and thus your chances of getting a credit card and loan approval too will be higher.
Access to best reward credit cards
With a strong credit score, you even are eligible to get access to reward credit cards present in the market, including those providing the lowest finance charges and highest reward points, cash backs, discounts, and other important benefits.
Get approved for a higher credit card limit.
With a strong credit score, you may even get approval for a higher credit card limit. Creditors are most likely to offer you a higher limit as you have proved your credibility to them.