The 3 main benefits of having a good credit rating


A credit score is your financial identity. It is a three-digit number between 300 and 850, which summarizes your credit history. Your credit score is calculated based on your past borrowings and repayments. This is a very important metric that is checked every time you apply for a loan. Banks will check your credit score to make sure you have a solid credit history with no previous defaults.

Credit bureaus are mandated to maintain an individual’s credit details which are shared with all banks and financial institutions upon request when evaluating and sanctioning different types of loans.

Adhil Shetty, CEO of Bankbazaar.com, says, “A bad credit rating can reduce your chances of getting loans. Even if you get the loan, it is likely to be on unfavorable terms. Improving a bad credit score can take months or even years. A bad credit rating would also make lenders doubt your credit health. On the other hand, a good credit rating means faster, hassle-free loan and credit card approvals, lower interest rates, more bargaining power, and higher loan limits.

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Let’s look at the 3 main benefits of a good credit score:

Low interest rates: Interest rates are directly related to your credit score. So, if you have a good credit score, you will be eligible for the more lucrative interest rates that banks and NBFCs offer eligible applicants. Your credit score can help you get the lowest interest rates on any loan.

Better chance of credit card and loan approval: A bad credit history can make it harder to apply for a new credit card or a loan. An excellent credit rating does not guarantee approval; however, a good credit rating increases your chances of being approved for new credit. Simply put, you can apply for a loan or a credit card with confidence when your credit score is over 700.

Trading Rights: A flawless credit history gives you bragging rights and something extra to be proud of, especially if you’ve had to work hard to get your credit score from bad to good. But aside from that, it also makes you a prime candidate for lenders to grant a loan, which gives you better negotiating ability.

Read also: Applying for a student loan? Here’s what you need to know first

If your credit score is poor, you should be extra careful and pay your credit card bills and other utility bills promptly so that the credit report does not show any faults. Avoid applying for too many loans at once. Keep checking your credit score monthly to find out what’s wrong with your credit history. Be disciplined and gradually work on your past mistakes to improve your credit score.

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