Why a Healthy Credit Score is Important

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Maintaining a healthy credit score is crucial in India for several reasons including when it comes to securing loans for various reasons. A good CIBIL* credit score, which is a numerical representation of your creditworthiness, plays a significant role in the loan approval process.

*There are other credit score companies operating in India but everyone seems to understand CIBIL as a verb rather than a noun when it comes to credit scores in the country. We have seen bankers do it, forget the common man.

A healthy credit score is akin to holding a key that can unlock numerous financial opportunities and benefits. Here’s why maintaining a good credit score is vital:

Easier Loan and Credit Card Approvals

A good credit score signals to lenders that you’re a low-risk borrower, making it easier for you to qualify for loans and credit cards. This means not only are you more likely to be approved, but the approval process itself can be quicker.

Financial institutions in India, including banks and NBFCs, regularly update consumer credit information to CIBIL. A good credit score, typically around 750 or higher, significantly increases the chances of loan and credit card application approvals.

Lower Interest Rates on Loans and Credit Cards

The interest rate is often directly tied to your credit score. A higher score can result in significantly lower interest rates, saving you money over the life of your loans and credit balances.

The discount can range from 1% to 2.5% or more. This means for every Rs. 100 of debt, you pay Re. 1 to Rs. 2.5 less than someone with a bad credit history. Think how much it will add up to for the larger amount loans.

Access to Better Credit Card Offers

With a healthy credit score, you’re more likely to qualify for credit cards with better rewards, cashback offers, and bonus points. These cards can offer valuable perks like travel rewards, higher cashback rates, and introductory 0% APR offers. Some companies may even give you premium cards for no charges if you have a good credit score.

Increased Negotiating Power

A good credit score gives you leverage to negotiate lower interest rates on new loans or credit lines. You might also have better luck negotiating terms with your current creditors. The latter, however, not as easy to do so in India unlike the west where good credit score customers are gold.

Approval for Higher Limits

Your borrowing capacity is often linked to your creditworthiness, represented by your credit score. A higher score can lead to higher credit limits, providing you more flexibility and potentially improving your credit utilization ratio—a key factor in credit scoring.

Better Car Insurance Rates

Some insurance companies use credit scores to determine premiums. A higher score can help you secure lower car insurance rates.

To Sum Up

Maintaining a healthy credit score requires responsible financial behaviour, including timely payments, keeping credit balances low, and only applying for new credit when necessary. It’s a reflection of your financial history and habits, and it can significantly affect your financial future.

Understanding the impact of your credit score and taking steps to improve it can open doors to financial opportunities and save you money over time. Start by regularly checking your credit score and report to monitor your financial health and address any issues promptly.

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