A credit score is an instrument to measure your creditworthiness. When you opt for a loan or a credit card, the lender will check your credit score. Your score depicts a clear picture of whether you can pay back the borrowed sum. It is a significant aspect in indicating your financial soundness. Therefore, it is mandatory to have a high credit score. Having a good credit score will aid you to tide over the financial constraints. Read further to understand what is a credit score and the importance of a credit score while opting for any loans or a credit card.
What is meant by Credit score?
In layman’s language, a credit score is a numerical representation of one’s credit files. It is used to describe the creditworthiness of an individual. A credit score is mainly based on a credit report. Generally, a credit report is data obtained from credit bureaus. In India, there are 4 credit information companies or credit bureaus namely TransUnion CIBILTM, Experian, Equifax, and CRIF High Mark whose credit scores are used by the lenders and borrowers to assess creditworthiness.
A credit score is computed by the credit bureaus in the country after considering the various factors like payment history, credit mix, credit exposure, credit inquiries, and the length of credit history. For those who are clueless, a credit score ranges from 300-to 900.
Normally, the ideal credit score of 750 and above is most preferred by the lenders. Hence, you should always carry out subsequent measures to maintain a credit score that is close to 900.
A credit score of 750 or above is deemed as a good credit score to borrow loans and credit cards. The credit score is allocated to you based on the credit-related information that is mentioned in the Credit Information Report. For instance, Experian’s credit information report contains the detailed structure of credit-related information like credit and loan history, identity information, credit cards, credit accounts, loans, payments, and recent inquiries.
Experian revamps the credit report every month with an individual’s credit information that is sent by banks and other financial institutions. This information is regarding how many times you have applied for credit cards and the number of loan approaches you made with the different lenders.
The lenders might consider such information, including the credit score, before approving any credit card or loan. Such requests from lenders are named hard inquiries. Please note that a high number of hard inquiries can reduce your credit score because the lender will assume you as a credit-hungry borrower with a high risk of default.
The percentage of credit limit used on your credit card also impacts your credit score. It is advisable to only use around 30 to 40 % of your credit card spending limit each month to maintain a high credit score.
Having a healthy credit score will aid you to get loans at more favorable terms with lower interest rates, which will save you money. Read more to know the importance of maintaining a good credit score.
Here is the Importance of Maintaining a good credit score
Eligibility badge to avail of any loans
Having a high credit score is like holding a ticket to be eligible for opting for loans and credit cards. A good credit score indicates that you have been repaying your debt and have experience in managing credit.
To Avail Of Credit Cards
Along with loans, having a high credit score will aid you in avail of a credit card with useful rewards and benefits. If you have a credit score of 750 and above, you can easily get credit cards that cater to your necessities.
Lower rate of interest
Another advantage of maintaining a healthy credit score is that the lender may offer loans at a lower interest rate. After looking through your repayment history, there is a high possibility that the lender may provide you with certain discounts on the interest rate for loans.
Help to avail Higher loan amount
A high credit score will aid you to avail a higher loan amount. On the other hand, if you have a bad credit score, it will result in a lower credit limit. A high credit score indicates your ability to repay the borrowed loan. Also, there is a high possibility that lenders may offer the best-featured credit cards with higher credit limits.
Instant loan approvals
Many lenders offer pre-approved loans to customers who maintain a long credit history and a high credit score. Fast loan approvals by banks are one of the best benefits of maintaining a high credit score. The lender will approve your loan application instantly without making you wait for a long time.
Adds value to a visa Application
A good credit score adds weight to your visa application. When you apply for a visa in countries like the USA and the UK, your income tax records will be taken into consideration. Therefore, a healthy credit score could accelerate the visa application process.
For The Future
Maintaining a good credit score is very useful at times when you apply for home loans, personal loans, credit cards, or any other kind of loan in the future. It is always best to maintain a credit history as it helps the lenders to measure your credit handling.
The role of credit score while opting for any kind of credit card or loan is important. It is always better to maintain a good credit score of 750 or above to avail of loans or credit cards with attractive features like low-interest rates, higher loan amounts, card rewards, and instant loan approval and disbursal. In case of a low credit score, you can opt for credit improvement services to rebuild your credit score and easily avail of loans and credit cards with attractive benefits.