The credit score determines your financial health. For a borrower, it is a mark of creditworthiness. For a lending institution, it is a mark of credit risk.
India’s average credit score in FY22 was 715. The score is not terrible, but it is not the best either. A good credit score acts as a screening test for borrowers. It affects your purchase decisions too. For instance, you may purchase a house with lower down payments with a high business credit score.
To get a rough idea about your finances and provide insights for the future, you can get your free credit score check online.
What do you mean by a credit score?
A credit score is a number that defines an individual’s financial credibility. The number ranges from 300 to 850. India’s average, 715, is considered a fair credit score. In fact, a good credit score is any score upwards of 750.
Your entire credit history determines your credit score. It includes your payment history, outstanding debts, and the number of open accounts.
A bank or NBFC approves loans and credit cards by evaluating the borrower’s credit score. However, a business credit score has several other perks. A regular credit score check can help you plan your finances accordingly.
So, here are seven benefits of a good credit score that can impact your financial planning:
Faster approval of loans and credit
The credit score is crucial for loan and credit card approvals. A good credit score for loan means the lender can trust you to repay your debts on time. It leads to faster approvals as your credit score quantifies your creditworthiness.
The credit score also affects the loan rates and repayment window.
For instance, people with low credit scores (less than 640) are called subprime borrowers, subject to higher loan rates. Furthermore, lenders may require a co-signer for people with low credit scores.
Additionally, a high credit score leads to higher credit limits. Your credit card limit is more. Since your borrowing capacity increases, you can borrow more from the lending institution.
Lower interest rates for loans and credit cards
From a lender’s perspective, credit score determines the borrower’s credit risk. Therefore, it is pivotal to the calculation of the interest rate for the borrower. It can affect the interest rates for both loans and credit cards.
The interest rates for different loan products vary with the lenders. However, borrowers with low credit scores are subject to higher interest rates. A higher credit score makes you privy to the best rates. It also yields more credit card benefits and perks. The impact of the credit score for loan is, therefore, very high.
Best rate on insurance policies
High credit scores can help you save on insurance policies. You may have to pay higher premiums without a decent credit score.
It may affect your insurance approvals too. The insurance company may deem it necessary because of your credit report before accepting you as a client.
The calculation of insurance rates depends on multiple factors, including your credit score. It is because your credit score shows how you manage your finances.
Better job opportunities
Your credit score can impact your employment status. Employers often do a background check on the candidate’s credit score to ensure they are responsible and dependable. Furthermore, several jobs in the finance and insurance industries require you to have a high credit score. For instance, you can only work as a personal loan agent if you have a decent CIBIL score.
Fast approvals on rental and housing
Landlords determine your creditworthiness as a tenant by checking your credit score. A good credit score is a proof that you are trustworthy and financially sound as a tenant. It increases your chances of getting an apartment on rent.
Your business credit score also helps with real estate investments. If you buy a property, your CIBIL score will boost your reputation as a reliable home buyer.
Lesser scope for paying security deposits
You can avoid security deposits on utilities with a good credit score. Security deposits become a hassle when you relocate or transfer your services. A business credit score proves your credibility. Thus, providers are more open to settling without security deposits.
Better negotiating power
You can also use the credit score for loan terms. It can help you negotiate better terms with the lender. Furthermore, you can use your credit history as a bargaining chip.
Negotiating power comes in handy when you need to make big purchase decisions. For instance, buying a house becomes easier when you already have a solid loan pre-approval offer. A good credit score gives you the power to have this generous pre-approval offer.
The Bottom Line – More perks, less hassle
Credit score affects your purchase decisions and mortgage. Considering its role, you must evaluate it before planning your finances. Taking the credit score into account will help you utilize your financial resources without straining them.
Moreover, a good credit score for loan is rewarding in itself. It broadens your scope for employment while simultaneously cutting down on costs like security deposits.
Frequently Asked Questions
What is a good credit score?
A good credit score is anything upwards of 750 on your credit report. A high credit score can help you with faster loan approvals and better deals. Since it proves your credibility, it also helps you with rentals.
How can I take advantage of a good credit score?
You get several perks with a good credit score. For instance, it helps you get faster loan and housing approvals and lowers interest rates. You can also use a good credit score to negotiate better loan terms and interest rates.
How to get a credit score check?
You can get a credit score check on the official website of TransUnion CIBIL. However, beware of fraudulent websites when you do your free credit score check online.
How is credit score calculated?
The number and type of open accounts, payment history, and outstanding debts determine your credit score. Maxed-out credit cards, overall debt, and untimely payments lower your credit score.