A credit score is a three-digit number that depicts your creditworthiness. It indicates your entire credit history. A credit score is also an important factor when it comes to acquiring loans. It informs the lender of your ability to repay. You might also get additional benefits, like better rates on mortgages and car loans, with a high credit score.
Thus, maintaining a good credit score becomes important when you are trying to get a new credit instrument, like a loan or a credit card. Several factors can affect the credit score, like repayment history, credit mix, credit utilization ratio, etc.
A credit score generally ranges from 300 to 900. Most lenders consider 700+ a good credit score. It makes acquiring large amounts of loans at lower interest rates easier. There are several benefits to increasing your credit score. Let’s take a look at them.
Benefits of Increasing Credit Score
- Easy Credit Approval
Receiving a loan rejection can hurt. Therefore, it is best to maintain a good credit score. Having a good credit score increases your chances of loan approval. Lenders will be more willing to lend you the money. The waiting period may also reduce as lenders quickly sanction loans for people with high credit scores. Many lenders even offer pre-approved loans to individuals with healthy credit scores and strong credit histories.
- Lower Interest Rates
A good credit score will inform the lender of your repayment capabilities. Thus, people with higher scores generally get loans at lower interest rates. This also means that you will be able to save a large chunk of money by paying less interest. There are further benefits, like discounts on the processing fee and other charges. This is why increasing credit scores can turn out to be really beneficial in the long run.
- Higher Credit Limit
A healthy credit score not only provides a loan with lower interest rates but also helps in securing higher loan amounts and credit card limits. This is because a higher credit score ensures the lender that you have repaid the loan in the past without defaulting. Thus, it increases their trust to loan you a higher amount.
- Access to Better Credit Cards
In addition to higher credit limits, a good credit score also ensures you access to better credit cards. You can unlock a wide variety of cards with several benefits, such as travel points, cashback rewards, and other advantages. These rewards also help you save money in the long run.
- Longer Loan Tenures
Good credit scores can get you loans with longer terms. This will further increase your chances of repaying the loan on time. The option is great for people who want to repay the loan over a long period of time.
However, keep in mind that a longer tenure generally means a higher interest rate will be paid. That is why it is recommended to keep your loan tenure short.
Tips for Increasing Your Credit Score
If you have a low score, you don’t need to worry. Your credit score can be increased. There are several ways to go about it.
Let’s have a quick look at some of the ways you can increase your credit score:
- Review your credit reports regularly. Correct the errors that you find, if any.
- Pay your debts and bills on time. This directly impacts your credit score.
- Have a mix of credit products. Diversity can help increase your credit score.
- Keep your credit utilization ratio low. It is best to keep it as low as 30%. This shows a lower amount of dependency on credit.
- Keep your old credit cards. A longer credit history plays a key role in determining your credit score. It also acts as proof of reliability.
Your credit score plays a big role when it comes to borrowing loans. Poor credit history makes the whole loan-acquiring process difficult. Thus, it is important to have a good credit score. It helps obtain large loans at lower interest rates. You can even get longer repayment terms.
A good credit score also makes sure the approval process is hassle-free and quick. Access to a variety of credit cards is another advantage of having a good credit score.
These are the privileges that one can gain by increasing their credit score. For more finance-related blogs and other tips, head over to Piramal Finance. Our experts over there will solve all your related queries and make your financial journey more simple.
- What is the ideal credit score to have?
Generally, a credit score ranges between 300 and 900. Anything above 700 is considered healthy. However, you can get a loan or other credit products if you have a lower score. But the interest rates and loan amounts may not work to your benefit. Thus, it is advised to keep your credit score high. It helps secure larger loans at lower interest rates.
- What factors can affect the credit score?
Many factors come into play while calculating a credit score. These include your repayment history, credit mix, credit utilization ratio, and so on.