Importance & Benefits of Having a Good Credit Score

Lenders assess your creditworthiness using your credit score. It influences your loan approval, interest rate, and credit card limits as well. Individuals with a good credit score can get favourable terms, interest rates, and offers from lenders. A good credit profile further convinces financial institutions that you are financially stable. Read on to understand the importance of credit scores.

Credit score varies between 300 and 900; it is considered good if your score is over 750. A credit score is a numerical representation of creditworthiness. In India, the credit bureaus that calculate your scores include CIBIL, Experian, Equifax and CRIF High Mark. When the credit score is low, the lenders may charge a higher interest rate or simply reject the loan application. Thus, the importance of a good credit score is that it ultimately gives access to better terms.

A higher credit score is important for the following reasons:

• Faster Loan Approval:
  Banks and financial institutions tend to offer credit products to borrowers with higher credit scores.

• Reduced Interest Rate:
  You can get loans at a lower interest rate with a good score, which reduces the repayment burden.

• Better Negotiation Power:
  A higher credit score allows you to negotiate with the lender for better interest rates and repayment tenure options. 

• Premium Credit Cards:
  Banks can offer exclusive benefits and premium credit cards to those with high credit scores. 

• Easier Rental Contracts:
  Certain landlords check credit scores before leasing properties, thus working towards a good credit score is beneficial.

Here are the tips you need to improve and maintain your credit score: 

• Pay All EMIs and Bills on Time:
  Timely payments can boost your CIBIL score and help you avoid penalties. 

• Keep Credit Utilisation Low:
  Using less than 30% of your available credit limits helps maintain a healthy debt-to-income ratio.

• Check your credit report regularly:
  Reviewing your report lets you identify any errors or discrepancies and take the necessary steps to correct them.

• Keep a Mix of Credit:
  Having both secured and unsecured credit accounts can enhance your overall credit profile. 

• Keep Old Accounts Open:
  If you have old, unused credit accounts, don't rush to close them. A long credit history can improve your credit score. You can continue using these accounts for small purchases and make timely payments.