Loans have become an integral part of our lives, especially since the pandemic started. Various banks, NBFCs, and fintech players – all have started giving out loans to people in need, but some people still faced trouble getting loans due to low credit scores or no credit scores. It may be noted that a credit score is something Indians tend to generally ignore. Be it a home loan, education loan, or any other loan: a borrower’s credit score will probably be checked everywhere.
According to industry reports, almost 6 out of 10 millennials are rejected when applying for credit cards, mortgages, car loans, and other financial products. In fact, millennials aged between 23 and 38 years are the ones that experience higher denial rates than other generations.
Vineet Patawari, Co-founder, CEO of financial market learning portal Elearnmarkets.com and stock market analytics platform StockEdge, says, “This pandemic is a testament to the importance of Financial Independence in our lives. The future is uncertain and certainly requires sound financial planning. Having a good credit score is necessary for easy approval of a loan.”
So, what is the Credit Score?
This instrument was first introduced by Fair Isaac Corporation but has now gained worldwide popularity. To put it simply, a credit score is a numerical figure obtained from a person’s credit files to represent how worthy they are for any type of credit instrument.
Patawari says, “A credit score generally ranges from 300-850, based on factors like total levels of debt, number of open accounts, repayment history, etc. Any score above 650 is considered to be good and the person may be eligible for low-interest rates.”
Having a good credit score goes a long way. Experts say a good credit score is a gateway to a smooth financial life. That is the reason many individuals actively seek information to manage their creditworthiness. To improve one’s creditworthiness, experts say repaying loans on time is a great way to start.
How can you improve your credit score?
- Be timely while paying bills. Experts say one should not delay paying the bill till the last due date, try to clear it in advance.
- Enquire regularly with your credit card company about a potential credit increase. A good standing on credit increases your credit limit.
- Avoid closing credit card accounts. Patawari says, “Stop using the account but never close your account. It will significantly hurt your credit score.”
- Work with credit repair companies. They perform an array of activities like negotiating with your creditors and offering consultancy.
Experts say financial independence is not a sprint race. It is a marathon. With sound planning and smart investing, anyone can be financially independent.