Credit score has been one of the main factors considered by banks and other financial organizations when analyzing one’s loan and credit card applications. As a result, strong credit scores, often 700 or higher, are no less than a valuable financial asset as they can help you save money in the long term. Following are the instances where a strong credit score can help you:
You will get a loan with lower interest rates: Many lenders now use risk-based pricing to determine lending interest rates for loan applicants. Hence, loan applicants with higher credit scores which you can check free CIBIL score are less likely to default and because of this lenders strive to reward them by offering them reduced interest rates. One must understand that lenders charge higher interest rates to compensate for the higher credit risk associated with lending to persons with lower credit scores. Given that the risk-based pricing strategy might differ between lenders, compare loan rates from as many lenders as possible before settling on one. This will assist you in obtaining the best possible loan arrangement with the most appropriate lender based on your financial needs.
Let’s use an example to demonstrate how much interest rates affect your overall loan cost:
Assume you take out a Rs 50 lakh home loan with a bank that practices risk-based pricing and offers 8% interest to those with a credit score of 750 or higher, 9% to those with a credit score of 600-750, and 10.5% to those with a credit score of 600 or lower.
Using an online home loan EMI calculator tool, we can see that the total interest cost for those with a good credit score of 750 and above is Rs 50,37,281 (total loan cost along with principal is Rs 1,00,37,281), for those with a 600-750 credit score is Rs 57,96,711 (total loan cost along with principal is Rs 1,07,96,711), and for those with a low credit score of less than 600 is Rs 69, And the benefits don’t stop here. Some lenders will even go so far as to offer lower processing fees to applicants with good credit scores which you can Check free CIBIL score. Lenders frequently waive or reduce loan processing charges/fees. Such benefits are especially beneficial in the case of large-ticket loans, such as home loans, where the waiver or reduction of processing fees can dramatically reduce a borrower’s overall credit cost.
Savings from better credit cards with higher rewards: Credit cards, in addition to being a payment option and a source of fast credit, offer a variety of incentives such as discounts, cashback, reward points, no-cost EMIs, and so on. Credit card issuers, like loan providers, view credit score as one of the most essential factors when considering credit card applications, as they, too, are a type of credit. As a result, people with good credit scores have a better chance of getting their credit card authorized. That is not all. Those who are disciplined, i.e. have a good credit score, have a better chance of getting a better credit card (and hence better incentives that can save money on transactions).
A good credit score can also help you increase your credit limit, which will improve your ability to spend on your credit card according to your financial needs. This also allows you more breathing room by increasing your credit limit availability and keeping your overall credit utilization percentage low.
Negotiation Power: Having a high credit score which you can Check free CIBIL score offers you negotiation power. It will not only be easier for you to obtain a loan, but with this negotiating chip in hand, you will be able to select a lender that offers not only the best interest rates but also competitive processing/legal fees and pre-closure terms. All of these can help you save a significant amount of money. Banks may really eliminate the pre-closure penalty and processing fees in exchange for a better credit score.
Higher chances of transferring a loan to a better lender at a reduced interest rate: Lenders frequently try to attract credit-disciplined borrowers from other lenders by offering balance transfer options at reduced interest rates. After all, any lender would prefer an existing customer who has demonstrated disciplined repayment, as seen by a high credit score. So, if you have strong credit and are repaying an existing loan, other lenders may try to persuade you with a better loan deal, such as a reduced interest rate, by completing a balance transfer. This might be a win-win situation for both you and the lender.
However, before making a decision, ensure that the savings in interest expenses are much greater than any fees/charges associated with the transaction.
So, how to improve your credit score?
A low credit score which you can check free CIBIL score might make qualifying for low-interest rates difficult and considerably more expensive than if you had strong credit. There are actions you can do to enhance your credit score, raise your chances of receiving credit, and potentially save money. Here are the four ways to improve your credit score from fair to excellent:
Check your credit report for problems: Check free CIBIL score your credit report for inaccuracies is one of the simple ways to improve your credit score. One in every five individuals finds problems on their credit reports, and challenging those errors can result in their removal as well. Once such errors are corrected, your credit score may improve.
Make timely payments: Payment history accounts for 35% of your total CIBIL Score. In fact, missing a payment might cause your credit score to drop by 90 to 110 points. Not just, paying late to your lender may require you to pay late fees to your lender. To avoid this, keep track of your payment due dates. If you don’t think you’ll be able to make a payment, speak with your lender to see if they’d be willing to give you some leeway.
Consider obtaining a debt consolidation loan: If you fail to pay your bills on time, your credit score may suffer. In such a situation, one can consider this your last option. They can not only help you handle your expenses more easily, but they may also save you money if you qualify for reduced interest rates.
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