Why Should You Maintain a Good Credit Score

To build and maintain a good credit score, you need to define your goals first. For an optimised financial plan, you need to first be sure of how you want to invest and in what.

Maintaining a good credit score is important because it helps you negotiate better for loans and credits, get exclusive credit cards and build your financial stability. An excellent credit score unlocks premium financial benefits and puts you on priority for banks and lenders. 

What Is A Good Credit Score Range?

Banks and credit bureaus place you on various tiers that indicate your creditworthiness. Based on which tier you are in, the lenders and banks decide what terms you receive loans and credits on. This scoring model is used for a fair assessment and risk mitigation in the lending process. Know the expert views of the Country Managing Director of Experian about a good credit score. 

7 Benefits of Maintaining a Good Credit Score

Maintaining a good credit score has many advantages, including improving your financial skills. These skills will help you throughout life, in every financial decision you make. 7 advantages of a Good Credit Score are listed below:

 1.    Negotiating Power

This is one of the underrated advantages of a steady and good credit score. This power is exclusively given to those who are the best at repaying debts and interest. This way, you can enjoy favourable loan terms for a variety of types and amounts of credit. To achieve this, you will need a top-tier or excellent credit score, like a 750 or a solid 800+.

 2.    Lower Interest Rates

As the young generation is becoming informed and digital-savvy, they have realised the long-term cost of borrowing. With a higher credit score, banks will put you on priority for the availability of low interest rates. This is because you have established a pattern of trust and timely repayments.

3.    Loan and Credit Qualification

If you have a good credit score, you will instantly secure your desired loan. Otherwise, your credit card or personal loan approval may be delayed. You might qualify for a higher amount than you needed. A good credit score qualifies due to the history of timely repayments.

 4.    Higher Loan Amount or Credit Limit

The loan and credit market is notorious for its competitive rates. Almost the entire loan process that you avail first goes through the pool of competitors that might qualify for the same terms better than you. If you surpass the lower tiers and get counted within the favourable range, you unlock higher credit options. This is especially true for an unsecured loan.

If you have bigger plans in life, like a home loan, car loan or business loans, you will need to display an adequate financial profile that qualifies for it. You will be given a lower credit limit if you have a poor credit score. This will make it difficult to manage your credit usage.

5.    Better Terms and Offers

If you have a good credit score, you become eligible for an exclusive credit card with multiple benefits. Not only will it be approved quickly, but you will also have a higher credit limit and unlock exclusive offers. These offers can be cashback offers, reward points, dining, travel, airline, or entertainment perks, etc. A good credit score makes you eligible for longer loan tenure and pre-approved loans or credit cards.

 6.    Financial Skills

When you regularly maintain a good credit score, you will establish a pattern of good habits. You will also continuously analyse what’s working and what is not, which will give you an enhanced and advanced level of financial awareness. You can use these valuable financial skills throughout your life, and not just for the sake of your credit. You will be able to plan your expenses, financial decisions and repayments effectively.

7.    Be Prepared for an Emergency

Dealing with sudden emergencies can be hard for anyone. Even with some funds as savings, you never know what amount you might actually need. If you have a good credit score and are eligible for loans or credit, you can easily use that support for better situations during a crisis. You can also be mentally relieved to some extent.

Practices to Maintain a Good Credit Score

 1.    Pay Your Bills

When you miss a payment, your CIBIL score might be affected. Set up auto debits and make sure you don't miss any of your repayments. This tells them that you are responsible towards fulfilling your repayment duties.

 2.    Manage your credit usage

A credit utilisation ratio of more than 30% communicates an overdependence on credit. This means you are struggling with multiple debts. This is a negative impression to have on your bank and lenders. Keep a natural and low credit usage to maintain your good credit score.

 3.    Healthy Credit Mix

 Having a healthy credit mix is a process backed by patience instead of deliberately applying for too many cards at the same time. This can establish a pattern that you can manage various types of debts efficiently. Create a credit mix of credit cards, EMIs, loan interests and a history of repayments.

 4.    Check your credit report

Establish a routine of credit report checks, whether monthly or quarterly. If you are actively paying off debts, you should do it every month, and quarterly for stable accounts. Analyse your report to know what to rectify, what to dispute, and stay vigilant of your monthly repayments.

 5.    Pay Off Debts

If you have any dues or late payments, pay them off, preferably in full. Set reminders and autopay for recurring payments, so you don't miss your due date. Having collections and debts lowers your score, and it may take months to make up for it.

 Rahul’s Case Study: Impact of Bad vs. Good Credit Score

Rahul is a 32-year-old software professional working for almost 9 years. Earning a decent salary and having saved up, he now decides to buy a cosy house for himself. Feeling confident of his financial decision and the plan that backed it, he applied for a 50 lakh loan at a premium bank.

The Catch? He got rejected, even with a stable financial background. After an investigation, he landed on his credit score, which was a 660. He studied his credit report and found:

       ●     Late Payments on a personal loan for his medical treatment

●     High credit usage at 63%

●     Multiple hard inquiries from recent loan applications

Since he was already onboarded for most of the home-buying processes, like the builder fees, he was flustered. He needed a quick resolution and a good credit score. His roadmap looked like this:

●     Cleared his debt with a debt consolidation program

●     Decreased credit utilisation

●     Finalised the bank he actually wanted a loan from

●     Tracked credit report and activities monthly

●     Set up auto debit for ongoing EMIs

Within a year and 3 months, his credit score was 780.

When he applied after such a long waiting period, he received a pre-approved loan offered at a 2% lower interest rate, saving nearly 8.5 lakhs in accumulated interest. Through his goodwill negotiation, he received a waiver of some fees. He was eligible for a higher credit limit and a new premium credit card with exclusive perks for travel, hotel bookings, and online shopping brands. Even his deposit amount was decreased.

In his heart, he knew that this transformation was because of his good credit score. To improve and build credit for a loan, explore other ways to build credit.

 Conclusion

Looking at a banker’s perspective, a credit score is not just a number, but an economic and pricing mechanism. Higher credit scores can elevate you among highly competitive loan seekers and lower your risk for unfavourable and expensive loan terms. The Long-term borrowing cost is greatly reduced even at a 1% interest reduction. Enjoy better perks and benefits from both the bank and your credit card provider with a good credit score.

 FAQs

1. How long does it take to improve my poor credit?

It depends on the level of credit delinquency. Most of the marks like missed payments and defaults, can stay in your report for up to 7 years. To improve a poor credit score, it might take a duration of 6 months to 2 years.

2. Should I remove my closed accounts to improve my overall credit score?

Definitely not. Your closed accounts add to your existing credit score, and account age is a factor that increases your credit score.

3. What is considered a good credit score?

In India, 750+ is a good CIBIL score that establishes you as a low-risk borrower.

4. How much credit score qualifies me for a personal loan?

For favourable terms and a lower interest rate, you should have a 750 credit score for a personal loan. Apply to the bank or financial institution that provides loans for your specific CIBIL score.