Your credit score is crucial to your finances, affecting your eligibility for loans and credit cards as well as the interest rates you will face. But it's important to understand the difference between your credit score and credit report. The latter contains information about your current and past credit agreements, whereas your credit score is a three-digit number derived from the information in your credit report. Read on further about how a good credit score can save money and get you a better loan or credit card.
In India, many credit rating agencies assign credit scores to individuals. You can save money with a high credit score.
At Shriram Finance, we understand the importance of a good credit score in helping you save money. We offer a range of credit solutions including loans for commercial vehicles, two-wheelers, cars, homes, gold, personal finances, and small businesses. We also provide fixed deposits and fixed investment plans to help you grow your savings. Begin your savings journey today by applying for a fixed deposit with Shriram Finance.
Let's explore how having a high credit score can help you save money .
How A Good Credit Score Can Help Save Money
A good credit score opens doors to lower interest rates on loans. Better interest rates are typically given to borrowers who have higher credit scores as they are perceived as less risky by lenders. As an illustration, let's take into account two individuals who are looking to secure a home loan - someone with an average credit score of 650, and another with an excellent score of 800. The person with the excellent score might be granted an 8% interest rate, whereas the individual with the average score might be offered a 10% one. These tips can help you to save money with an excellent credit score.
Lower interest rates on loans
Maintaining a healthy credit score can make a substantial difference in the amount of money you save on loans through lower interest rates. A credit score is a numerical representation of your creditworthiness, reflecting your history of borrowing and repayment behaviour. Lenders use this score to evaluate the level of risk they take when lending you money. A higher credit score indicates a lower risk, which can lead to significant financial benefits.
When you have a high credit score, lenders view you as a responsible borrower with a track record of managing credit responsibly. As a result, they are more likely to offer you loans at lower interest rates. Lower interest rates mean that you'll pay less in interest over the life of the loan, which translates to more money staying in your pocket.
Savings through Greater Rewards on Better Credit Cards
One of the ways to save money with a good credit score is by taking advantage of greater rewards offered by credit cards. Credit card providers often offer lucrative rewards programs that include cashback, reward points, and discounts on various purchases. However, these rewards are typically reserved for customers with higher credit scores.
By maintaining a good credit score, you increase your chances of qualifying for premium credit cards with enhanced reward programs. These cards offer better cashback percentages, higher reward point earnings, and exclusive discounts at partner merchants. With each purchase you make using these cards, you can accumulate more rewards and ultimately save money on everyday expenses.
Higher eligibility to transfer a loan to a better lender at a lower rate
Having a highcredit gives you more leverage when negotiating better loan terms or interest rates. Lenders are more likely to offer favourable terms to individuals with excellent credit scores as they view them as reliable borrowers. For example, if you have an existing home loan and your credit score has improved significantly since you took out the loan, you may be able to transfer your loan to another lender offering lower interest rates. These tips to save money with good credit can help you a lot in getting better interest rates and loan terms.
By refinancing your home loan at a lower interest rate of 7% instead of 9%, you could save approximately Rs 5 lakhs (Rs 500000) over a 20-year loan term. This demonstrates how saving money with a good credit score can progress over time.
In addition to better interest rates, individuals with good credit scores may also benefit from waived fees or reduced down payments. For example, when purchasing a car, individuals with excellent credit scores may be able to negotiate a lower down payment, reducing the overall cost of the loan.
Build Your Credit to Take Advantage of Savings
Building your credit is essential for saving money. By following some practical tips, you can improve your credit score over time. Firstly, make sure to pay all your bills on time as payment history accounts for a significant portion of your credit score. Keep your credit utilisation below 30%, meaning you should not use more than 30% of your available credit limit. Improving credit scores to save money is a crucial task in getting better financial help.
It's also important not to close old accounts as the age of your accounts plays a role in determining your creditworthiness. Having a mix of different types of loans such as auto loans or home loans can also improve your credit score as it shows that you can handle various types of debt responsibly.
Improving your credit score to save money allows you to qualify for better loan options with lower interest rates. For example, let's say you are looking to buy a car worth Rs 10 lakhs. With an excellent credit score, you may be able to secure an auto loan with an interest rate of 7%. On the other hand, if your credit score is average, you might have to settle for an interest rate of 10%.
Look into a New Insurance Plan
Credit score impact on saving money can affect your insurance premiums. Insurance companies often consider individuals with higher credit scores as less risky to insure and offer them lower premiums. For example, let's consider two individuals with different credit scores looking for auto insurance. The individual with an excellent credit score may be offered a premium of Rs 15,000 per year, while the one with a poor credit score might have to pay Rs 20,000 per year.
Over five years, the person with an excellent credit score would pay Rs 75,000 in premiums, while the person with a poor credit score would pay Rs 1 lakh. That's a difference of Rs 25,000! By working on improving your credit score over time, you can access better insurance rates and save money on premiums.
Conclusion
Maintaining a highcredit is essential for saving money. A good credit score leads to lower interest rates on loans, helps you access better rewards and benefits on credit cards, reduces insurance premiums, and enhances your negotiation power when seeking favourable terms.
At Shriram Finance, we understand the importance of a good credit score in helping you save money and achieve your financial goals. Check your credit score regularly and take steps to improve it if necessary. By doing so, you can unlock greater savings opportunities and secure a brighter financial future.
FAQs:
1. How does having a high credit score help save money?
Having a high credit score allows you to qualify for loans or credit cards with lower interest rates, resulting in significant savings over time. It also enables you to access better rewards and benefits on credit cards.
2. What are some practical tips to improve my credit score?
Pay bills on time, keep your credit utilisation below 30%, maintain old accounts, and have a mix of different types of loans.
3. Can a high credit score help me negotiate better deals?
Yes, individuals with high credit scores have more negotiating power when seeking better loan terms or interest rates. They may also benefit from waived fees or reduced down payments.
4. Can I still save money with a high credit score if I have existing debt?
Yes, having a high credit score allows you to refinance existing loans at lower interest rates, resulting in potential savings over time.
5. How long does it take to build a high credit score?
Building a high credit score takes time and consistent responsible borrowing habits. It depends on various factors such as your payment history, credit utilisation, and length of credit history.
Key Highlights:
- A good credit score leads to lower interest rates on loans, resulting in significant savings over time.
- Building good credit enables access to better rewards and benefits on credit cards.
- Individuals with high credit scores may qualify for lower insurance premiums, saving money in the long run.
- Negotiating power is enhanced with a high credit score, leading to better loan terms and interest rates.
