Credit bureaus have been in full-swing operation in India for over a decade, but many people are unaware of them. What’s further depressing is that only a small percentage of people understand their credit reports. The low financial literacy ratio in Idia is to blame for the lack of understanding about credit reports and credit scores. Result? One isn’t equipped to take financial decisions on their own.
If one is wondering what a CIBIL Score is, it is a three-digit figure ranging from 300 to 900 that represents an individual’s ability to repay loans. Your credit score is the most important factor that banks and NBFCs use when approving or rejecting your loan application because it tells lenders about your creditworthiness. A higher credit score indicates to the bank that a lender has a low risk of defaulting on a home loan and due to this, banks and NBFCs will be more interested in issuing you a loan. As a result, a higher credit score is required for loan approval, whereas a lower credit score reduces your chances of receiving a loan at a reasonable interest rate.
What impact does your credit score have on your financial future?
When you check your free CIBIL score, you will find it has the following effects on your financial future:
- Loan Approvals in the Future: As mentioned before, your credit score indicates your creditworthiness to potential lenders. The first thing any lender does when you apply for a new loan is examine your credit record. If your credit score is higher than the lender’s minimum credit score, your loan application will be considered for the next step and other eligibility criteria will be considered to see if you fulfill them or not. In contrast, if you do not have the required credit score, your application would be rejected outright. This is one such reason why it is important to know what is CIBIL Score.
- Efficient Loan Processing: If you have a good to exceptional credit score when you did check your CIBIL score, lenders consider your profile to be low-risk, which leads to a faster approval of your loan application. If you do know what a CIBIL Score is or if your credit score is low, lenders will have to analyze other factors to assess the risk in your profile, which may cause the loan procedure to be delayed. Furthermore, if you have a high credit score, your chances of being pre-approved and receiving a quick loan offer also increase.
- Better loan terms: A credit score affects not just your capacity to obtain new loans, but also the cost of such loans. It is indeed true that lenders will be interested in lending to you if you have an excellent credit score but the same will also gives you the authority to negotiate loan terms with lenders, such as interest rate, processing fee, and any other fees and penalties, loan duration extension, and so on when you are doing check free CIBIL scores quite often. An average credit score or below average may result in loan proposals with extremely high-interest rates.
- Access to high-end credit cards: An excellent credit score qualifies you for high-end credit cards that provide the most reward points and cashback deals. The credit limit on these cards is usually larger. Furthermore, these cards include partnerships with a variety of retailers, allowing you to purchase a chosen product or service at a reduced price.
- Eligibility for Refinancing: If you currently have a loan and need a top-up loan or want to refinance it, the lender will only consider your application if you have made all of your monthly payments on time. When your credit score is low, lenders normally avoid refinancing or granting top-up loans.
- Allows you to save: A poor credit score indicates that your obligations exceed your income. It also indicates that you should pay more attention to your spending habits and develop financial discipline. Failure to make monthly payments may prompt you to borrow more money, creating a never-ending loop that eventually leads to debt trap. You will be unable to save money for your future financial goals in this situation. A strong credit score, on the other hand, indicates that you pay your bills on time, avoid late fees and obtain loans with better terms. The money saved can be invested in many financial avenues, allowing you to build wealth over time.
- You will be at peace: You are practicing financial discipline and managing your funds successfully if you pay your monthly installments and credit card bills on time. This will provide you with financial piece of mind. Whereas failing to pay your dues and payments on time may cause financial stress, which will have an impact on your health and relationships.
- Buying a House or a Car Becomes More Affordable: To get a fair deal on a car or home loan from a bank or financial institution, you must have a strong credit score. A good credit score may result in a cheaper interest rate, a larger loan credit amount, a longer repayment period, and a greater likelihood of loan approval. If you have a low credit score, your loan application may be declined. With a low credit score, lenders may charge you a higher interest rate and/or give you a smaller loan amount than you require.
- Eventually the limit on Credit Card Limit Increases: If a lender notices that your credit score is continually declining, they may reduce the credit limit on your credit card. This step will assist you in staying on track with your expenditures so that you do not overspend, resulting in a large credit to pay back. If you continue to spend without regard for the smaller credit limit, your credit utilization ratio will rise, further harming your credit score.
So we are basically saying,
A credit score is a very important factor in determining your reliability for various areas of your financial future. It is essential to enhance or maintain your credit score by repaying your EMIs, maintaining the credit utilization ratio, and having a good mix of different types of loans, among other things, to ensure a positive financial future, access to loans, and employment eligibility.
