New Delhi: Nowadays, we all understand how it is important to not only save money but also to get additional returns on our investments. With the COVID-19 pandemic, we all know how unexpectedly the whole economic scenario had changed, many lost their employments, some businesses were in need of money for their working capital, and most urgent was to treat their family members at the earliest which in turn required money for paying hospital bills, medicines expenses and so on.
So here is the role of Credit Score, which can significantly affect the financial life of any individual seeking a loan for any purpose. Whether home loan, personal loan, credit card, business loan or any other loan of whatever name we called, the credit score will play a crucial role in the process of obtaining a loan.
A credit score is a three-digit number ranging from 300 to 900, which is considered as a measure of the creditworthiness of the individual seeking loan or any borrowing. For applying for any kind of loan, it is very important to have a good credit score. The provider of the loan will review the credit score of the applicant and then will evaluate the creditworthiness and other criteria before approval of the loan.
The credit score is provided by the credit bureaus based on the financial information such as payment history, credit usage, credit mix, types of accounts and other details as provided by the banks, NBFCs, financial institutions, and other approved lending institutions.
For a score with a range of 300-900, a credit score of 700 or above is considered good. The individual with a score of 750 above in the same range usually gets the loans sanctioned at a faster pace than others with a low score.
In short, the higher the credit score, the higher are the chances of getting the loan faster and with a low rate of interest. So, it is highly beneficial to maintain a good credit score. The lenders evaluate the credit score and then decide the degree of risk involved in processing the loan application, Higher credit score means the chances of losing money are low and thus it leads to faster approvals and also benefits.
Here are the ways through which you can improve your credit score and get a loan easily
- Timely payment of debts: The individual should follow a practice of timely payment of his/her dues as even a single day late payment can affect your credit score. If for any reason, you are unable to make full payment then pay at least the minimum due as in the case of credit cards. If there is a delay of more than usual then consider restructuring the loan or settlement as an option against ignoring the payment of debts. The delay in payment of EMIs will not only make you pay additional fees or penalties but will affect the credit score also.
- Credit Usage: It means the credit utilization among the limit sanctioned or approved. It is usually aimed at comparing the total credit limit of revolving accounts with the credit limit utilized. For example, you have a credit card with INR 2 Lakhs credit limit, then try not to use much of the limit and maintain at least credit utilization below 30%. In the case of multiple credits cards, an individual should keep a check on the credit money he/her using those cards.
- Plan your credit appetite: If any individual takes too many unplanned loans at once, then it can put him/her in a bad financial situation. Many people tend to apply for many credit cards just to increase their credit limit and when they are unable to pay the usage then the score crashes and thus creates more financial and mental problems for them. It is highly important to avail/apply for any loan/credit card when you actually need it and be sure to repay the amount so borrowed or taken. It is highly important to get any loan/credit card only when you understand the financial burden it may bring with it. Even in the case of timely payments, having too much credit /debt will be unfavorable to your score.
- Check your credit score and take course corrections: It is important to check your own credit score and identify the errors or mistakes that can affect your chances of getting the loan in the future and follow the recourse action. It is seen in many cases that the credit bureau may also make a mistake or error while updating your credit records and thus it is important to check the same at regular intervals.
It is important to mention here that credit scores act as the first impression and are not the sole factor deciding the loan/credit card approval such as the regular source of income, filing of their Income Tax Returns, any previous loan already running, etc.
The loan/credit card approval process differs from lending institutions and depends upon the particular loan for which the application is submitted. It should be noted that credit score cannot be repaired or say improved in a day or so. It takes considerable time, financial discipline, and patience to improvise the credit score.