Have you ever wondered why it is so important to maintain a good credit score? Consider this – you really need to make a down payment on this car you have been planning to buy for a while, but despite all your efforts you haven’t been able to save up and the only option left is a personal loan. But how do you know if your loan request will be approved or not? This is where your credit score comes into the picture. It acts as an indicator of your ability to pay off loans or other acquired debts. So, your ability to get approved for this loan will be based on your overall credit ranking. If your credit score is high, your chances of getting the loan approval are automatically higher; if not the lending institution may question your ability to pay off the loan. Here are 5 reasons explaining why it’s important to have a good credit score:
1. Increases Approval Rates for Future Loans and Borrowings
Since a credit score provides a comprehensive overview of the loans you have taken in the past as well as your repayment details, it serves as a basis for other financial institutions to clear loans of similar or higher values in the future. Depending on the type of loan as well as your credit history, you may also qualify for lower interest rates on repayment of bank loans and borrowings.
2. Positive Impact on Current Credit Allowance
Having a good credit score not only increases your chances of receiving a concession on the loan repayment rates, many lending institutions also use this as a metric to set a borrowing limit for your account. If you maintain a clean record when it comes to repayment of the various forms of credit you have availed in the past such as credit cards, EMIs, or even loans from other NBFCs, it automatically increases your chances of receiving a higher credit limit and larger payback periods, including extensions of repayment deadlines.
3. Improves Ability to Purchase Big-Ticket Items
In case of big ticket items like a house or a high-end car, while you can choose to pay in full, it may not be the wisest decision as that directly affects your cash liquidity. This leaves you with the option of applying for a personal loan, the acceptance of which is directly impacted by your credit score. If you have a good credit score, you can leverage that to receive more favourable repayment terms such as lower interest rates and longer repayment tenure.
4. Secures Contingency Options for the Future
How you utilize the credit available to you also impacts your credit score. Your credit score is higher if the credit limit utilized is low, thus enhancing your chances of loan approvals in case of emergencies or similar needs. For e.g.; if you are planning to pursue a specialized professional course that doesn’t qualify to receive a study loan, you can use your high credit score to apply for a higher value personal loan instead!
5. Increases Your Financial Freedom in the Long Run
A good credit history indicates good control over your personal borrowing and spending habits, and both directly impact your personal financial health. Therefore, ensuring a good credit ranking passes as a representation of being financially sound. This can also help you access good investment and saving opportunities such as better interest rates on insurance premiums, ability to purchase high-yield mutual funds, thus allowing you to generate good returns through specialized investments.
As you can see, maintaining your credit score has a number of benefits, all of which ultimately translates to a higher level of financial security! Not just that, a good credit score will ensure that you will always have the financial freedom, allowing you to pursue your life goals, be it for a business plan you feel passionately about or a special course you’ve always been meaning to do, or both without having to compromise on either!