Today, taking a loan or credit card has become much more accessible like from Shriram Finance Limited, which offers you a variety of hassle-free loans with flexible tenures. Hence, credit score is a word we often use and hear. Credit scores are crucial indicators of your financial health and impact your financial and credit choices. Click here to learn about how you can get personal loans with low credit scores.
As per a report, 79% of loans are sanctioned to consumers with a credit score greater than 750. It demonstrates lenders are more willing to sanction loans to applicants with good credit scores. So, do the perks of a good credit score go beyond loan application approval?
This blog explores what it means to have a good credit score and the benefits of having a good credit score.
What Is Credit Score?
Before we focus on the benefits of having good credit let us understand what it means.
A credit score is a three-digit number, indicating your creditworthiness and ranges from 300 to 900. The higher the score, the better it is.
Your credit score depends on the following four factors:
- Repayment history: Timely payments are the most crucial aspect that impacts your credit rating. Paying on time and regularly increases your credit
- Credit utilisation ratio: It indicates the proportion between your average monthly card usage and the approved credit card limit. Using more than 30% of the sanctioned limit shows overdependence on credit and impacts your rating adversely.
- Credit Age: It refers to how deep your credit history is, starting from your first card or loan. The older the credit age, the better it is for the credit rating.
- Credit Mix: To maintain a good credit score you will have to keep a balanced mix of secured (home, car) and unsecured (personal, credit card dues) loans.
- Credit Inquiries: Too many hard inquiries (inquiries made by FIs for credit assessment) in a short time can negatively impact the credit score.
7 Benefits of Having a Good Credit Score
Below we discuss the advantages of having a good credit score, some of which go beyond loans and credit cards.
1. Better Chance of Getting a Credit Card And Loan Approval
One of the most significant perks of having a good credit score is a higher chance of getting your credit card or loan application approved; we highlighted this earlier in our article.
When financial institutions (FIs) evaluate loan applications, they sanction loans to dependable applicants who can be relied on to make timely repayments.
Lenders check your credit report at the initial loan application stage. A good score improves your chances of loan application approval.
2. Lower Interest Rates on Credit Cards And Loans
When you take a loan, you repay it with the interest the bank charges. The interest rate is the cost of your loan and impacts your instalments along with your monthly budgets. Borrowers are keen to explore options that help them lower their interest burden. A chance to pay lower interest is one of the benefits of a high credit score.
Shriram Finance offers you loans at competitive rates, which can help reduce your interest rate burden.
FIs charge interest for the risk they undertake when they sanction a loan. Banks offer you loans at lower rates if you have a high credit rating.
3. More Negotiating Power
The benefits of good credit include tilting the balance in your favour when you negotiate loan terms. If you have a high credit score, lenders are less likely to reject your loan application.
With poor credit health, your choice of lenders is limited to those financial institutions willing to accept lower scores. High credit scores give you negotiating powers as more banks are ready to lend to you, and you are a desirable borrower. FIs are, therefore, willing to negotiate interest rates, processing fees and more with you.
4. Better Chance of Approval For Higher Borrowing Limits
A bigger loan amount means a bigger risk for lenders as they would lose more in case of default, especially in the case of unsecured loans like personal loans.
You can get a personal loan online for up to ₹1,50,000 from Shriram Finance with minimal documentation.
While the maximum limit (as a proportion) is fixed as per norms, lenders can choose to sanction loans below the specified LTV depending on their risk perception for the applicant.
The perks of having good credit include a chance to get bigger loans; a good score indicates lower risk. Lenders are willing to sanction higher loan amounts and credit card companies, have a higher credit limit.
5. Have More Housing Options
Above, we discussed that one of the perks of having a good credit score is a chance to get a higher loan, giving you more housing options. As we know from the discussion above, lenders will only sanction a proportion of the home value as a loan; the rest you have to pay from your savings, known as the downpayment.
Let's understand this with an example:
If you choose a house worth ₹5,000,000 you can get a maximum loan of up to 80%, which is ₹4,000,000 as per RBI norms; the remaining ₹1,000,000 you have to pay upfront from your savings.
Let's assume you have saved ₹1,000,000, but if your score is low, the lender may decide to sanction a lower loan amount, making it hard to buy your chosen home. A lower score will limit your options of buying a house as you will have to pay more as a downpayment as banks will sanction lower LTV as a loan.
One of the perks of a good credit score is giving you more flexibility when looking for housing options.
Sometimes, even homeowners look at your credit score before renting out a home, as they want to be sure they are getting financially healthy tenants. You will have more choices of homes to rent with a good rating, another benefit of a high credit score.
6. Better Car Insurance Rates
One of the lesser-known perks of a high credit score is getting insurance at a lower premium. Credit scores indicate the financial risk you pose to insurance companies and influence your car insurance premium.
If you have a healthy credit history, one of the unlikely benefits of a good credit score could be lower insurance premiums.
7. A Feather in Your Cap
This advantage is unlike the other perks of having a good credit score, as it does not give you any monetary benefits but a sense of accomplishment.
A good score implies that you have been a responsible borrower, paid your dues on time, and kept your credit card usage under control. All these are commendable achievements, and you should be proud of them.
A good score gives you the confidence that when you apply for a loan or a credit card, getting it approved will not be a challenge. One of the significant advantages of having a good credit score is quick approval. This feather in your cap can help you stay motivated to be credit-healthy and inspire others too.
Conclusion
Your credit score reveals your overall financial and credit health. There are multiple benefits of having a good credit score, ranging from lower interest rates to higher loan availability and competitive insurance premiums.
Good credit health should be a priority for everyone, whether they want to apply for a loan or not, as it points to financial and credit discipline. If you are searching for a loan, Shriram Finance Limited offers you the best deal for various loan purposes.
Paying your dues on time and being a responsible borrower ensures that you are financially healthy and lets you enjoy the perks of a high credit score.
FAQs
1.What is considered a good credit score in India?
A score above 700 is considered as good in India.
2.How do you get good credit?
The process of getting good credit starts with a healthy credit report, as lenders are willing to sanction loans at lower rates and more favourable terms.
3.What raises credit scores?
Paying your dues on time, keeping card usage below 30% of the sanctioned limit and not applying for many loans simultaneously.
4.What is a good credit score for my age?
Your age has no bearing on your credit score.
5.Does income affect credit score?
No, your income does not impact your credit score.
6.Is it OK to have no credit?
If you do not have any loan or credit card, you may not have any credit score, which is fine. Although you might miss out on some of the benefits later in life, like a lower interest rate on your home loan.
7.What are the 3 best credit scores?
Generally, credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
Key Highlights
- The credit score is an indicator of an individual's creditworthiness.
- A combination of factors like repayment history, credit mix, credit utilisation ratio and credit age influence the final score.
- The benefits of having a good credit score include increased loan approval rates, better interest rates, higher credit availability and negotiating power.
- Perks of high credit scores also include better insurance rates, more housing options and bragging rights.
Pro Tips
- If you have a running loan, do not prepay it unless necessary. Longer-running loans are better for your credit health.
- Do not apply for a loan simultaneously to different lenders; it harms your score.
- Check score eligibility laid down by lenders before you apply for a loan.
