We all are very ambitious and courageous with our money nowadays, whether it is the drive to double our wealth or just our lifestyle to spend huge amounts of money in a blink. And we all use credit cards as our daily wallets. Credit is our safety net whenever we need urgent financial assistance and to avail of any form of credit, it is important to be reliable enough.
Loans are another very prominent kind of credit that financially aids an individual. With numerous requests for big and small loans from the banks, they need to measure the risk of lending to their customers. For the same, they use credit score. A three-digit number that ranges from 300 to 900 is the measure that depicts your financial performance with borrowed money.
Healthy Credit Behaviour: Key to Big Loans
Your credit score is evaluated upon a plethora of factors some of which are repayment history and credit mix. If you are inconsistent in maintaining a strong clean slate of credit management then your credit score drops, notifying the bank that you are a high-risk borrower. Following could be some actions that adversely affect your credit score:
Defaulting Credit Card Bills
Your credit score is highly dependent on how you manage your credit cards since they can tell your everyday credit behaviour. Credit score varies with how timely you repay your credit card bills, and if there is irregularity there, it can disrupt your CIBIL credit score.
Multiple Loan Requests and Unsecured Applications
Excessive loan applications can negatively affect your credit score since they reflect your desperation for credit and your extensive financial burden. In addition, having a lot of unsecured loans also significantly impacts your credit score since it deems you credit-heavy and under a lot of liabilities making you a high-risk borrower.
High Credit Limit
A higher card limit gives the impression that you are in a high debt burden. Your credit score drops due to this, and the banks assess you as a very high-risk borrower. Unused credit limits also hamper your credit score therefore it is necessary to use a credit card vigilantly and regularly to maintain a good credit score.
Many Credit Cards
It is always better to have fewer credit cards that are used regularly since a larger number of cards can significantly elevate your Credit Utilisation Ratio (CUR). It is the ratio between your credit balance and credit limit, and it has a direct impact on your credit score. Higher CUR due to a greater number of credit cards can significantly impact your credit score.
Why do you need a Good Credit Score?
A decent credit score is very necessary to be financially secure in life. Whether it is an uncertain circumstance or just a planned leap of faith, a good credit score can always help you in accessing credit at your favourable terms. Banks determine your creditworthiness through your credit score and then decide for your borrowing requirements.
Better chances of Loan Approval
By having a strong CIBIL report, you can always have greater chances of getting your loans approved since you are a low-risk borrower for banks. Moreover, even the amount of the loan can be larger since they can trust a high amount of credit with you.
Better Interest Rates
Every bank wants to lend money to earn from the interest and therefore they bet on low-risk borrowers who can timely pay them and be regular. A good credit score will attract a lot of banks to offer loans to you at competitive interest rates. Amidst that competition, you can avail reasonable rates for yourself which can reduce your repayment money.
Pre-Approved Loans
A consistent track record of punctual credit management elevates your CIBIL score which captivates a plethora of banks to offer you loans at customisable and beneficial terms. When banks find a very good credit score, they offer pre-approved loans to encourage you to avail them.
Lead a Prosperous Financial Life
In today’s world, it has become a necessity to be in the good books of banks and a good credit score makes you capable of borrowing credit from them whenever you need it. To know your credit score, you can always go online and trust Tata Capital’s credit score calculator to evaluate your financial performance.