There’s no way around it – maintaining a high credit score is essential.
It’s a measure of your overall creditworthiness and financial health, and therefore, a key piece of your financial identity.
Having a poor credit rating is like running a marathon with a sprained leg – you can probably make it to the finish line, but it’ll be much, much more challenging. Meanwhile, having a high credit rating is akin to running a race in peak condition.
It can lend you a competitive edge in lending decisions and tip the scale in your favour. In a nutshell, it’s vital to build your credit rating early on.
Here are some benefits of having a high credit rating.
Cheaper rates on loans and credit cards
The foremost benefit of maintaining a good credit rating is that you qualify for better interest rates, thereby paying lower charges on loans and credit card purchases. The less money you spend covering interest, the faster you get rid of the loan burden, and the more money you save.
For instance, for a 30-year fixed mortgage of Rs. 25,00,000 at 7%, you’ll have to pay Rs. 59,87,722 during the lifetime of the loan. However, if you can get the loan at 6% – just one point lower – you’ll have to pay Rs. 53,95,956 over the loan tenure, a difference of approximately six lakhs!
Greater chances of loan approval
A high credit rating reflects a clean repayment track and a lower chance of default. Needless to say, this increases your chances of landing a loan, as lenders will be more than happy to forward you one on account of your responsible credit behaviour. It’s prudent to perform a credit score check before approaching a lender.
These quick approvals are especially helpful during financial emergencies, where you require quick funds and don’t want to drain your savings.
Higher credit card and loan limits
Your income and your credit score –are the two main factors that decide your borrowing capacity. By having a high enough CIBIL rating, lenders will be more willing to forward you higher credit card limits and loan amounts, allowing you to cover big-ticket purchases without dipping into your savings.
Better negotiating power
If you have a high CIBIL score, lenders see you as a desirable borrower, as you’re less likely to default on your loans. This might give you an edge over other borrowers, using which you can bargain for lower interest rates, reduced processing fees, and a favourable tenure. A low credit rating, on the other hand, might not offer you this wiggle room.
Besides, with a high enough score, you may even qualify for a pre-approved loan.
Building a high credit rating is essential, as it plays a key role in all lending decisions. The best way to get there is to pay all your ongoing EMIs and credit card bills on time, not go overboard with credit utilisation, and regularly review your credit rating.
Regular CIBIL score checks allow you to keep a tab on your rating and rectify issues, if any.