Individuals are becoming increasingly dependent on credit. The current economy has made credit essential and attractive for borrowers. Furthermore, there’s also social pressure to own a house or drive a luxurious car that forces individuals to seek credit to fulfil these gratifications.
Though banks and NBFCs offer various loan products, they do have strict eligibility criteria to get these loans. Credit Score is an important factor that determines your credit eligibility.
Here are some reasons why a high credit score helps you in several ways:
- High Credit Score = High Creditworthiness: Yes, the higher your credit score, the more assurance to the lenders on your repayment capacity. A high credit score means that you have had a good repayment history which assures the banker that you will repay the loan or credit on time. So bankers favour applicants with a high credit score.
- High Credit Score = Better Loan Terms: Bankers give preference to applicants with a high credit score. You can get a higher loan amount, lower interest rates and better loan terms when your credit score is high.
- High Credit Score = Less Risk Premium: The interest rate on any loan includes a component called the Risk Premium. This is determined based on your income and credit score. So, when your credit score is high, the risk premium is lower, resulting in a lower interest rate for your loan or credit.
- High Credit Score = High Credit Limit on your Credit Card: Credit card is pretty much a loan, an unconventional own nevertheless. Credit card issuers also check your credit score before sanctioning your credit card. So, when you have a higher credit score, you can negotiate with the banker for a superior credit card with a higher credit limit and premium benefits.
Tips to improve your credit score:
It is very simple to improve your credit score:
Make timely payments on all your loans and credit cards
Set auto-debit or a standing instruction to ensure that you don’t miss any payments
Ensure that your credit or liability is not over 50% of your income
Close down any long term loans or credit card outstanding that may be eating into your credit score