Rakesh has been making routine visits to his bank for getting his home loan sanctioned. As this was his first loan, he had been curious about the concept of credit score. Counting upon his neighbor, Aditya for all his financial queries, he had even discussed the things banks notice in the credit score with him a couple of days back. You can check the conversation here. So, while they were watching the FIFA World Cup match live on TV, the discussion during the halftime again turned towards the credit score.
“Aditya, do you remember we talked about credit score last week. I checked with my bank manager and came to know that my credit score is 759. Is this something good or bad?” Rakesh checked with Aditya.
“That’s indeed a great score. Any score above 700 is generally seen as a good score.” Aditya said. However, Rakesh was not much satisfied with this plain answer. It seemed like Rakesh had something more to ask.
Noticing this, Aditya continued, “A good credit score is an indicator of creditworthiness, i.e. the person has established positive habits with their finances. One tends to get plenty of benefits with a good credit score.”
Benefits of a Good Credit Score:
1. Better chance for credit card and loan approval- Credit score is your first impression of you as a borrower in the eyes of the bank. As such, having a good credit score improves your chances for faster and earlier approvals for credit cards and loans etc.
2. Low-interest rates on loans- Several banks have started linking the interest rates applicable to the borrower with credit score. As such, the interest rate you may be charged on your loan can get affected by your credit score. Some time back, Bank of Baroda had become one of the first banks to offer better interest rates on home loans for customers with a credit score above a specified number. Many more banks have already followed the suit and several others are now joining the race. Recently, IDBI Bank has also offered some discount on the applicable interest rates for customers with good credit score. It, therefore, becomes imperative for you to maintain a good credit score.
3. More negotiating power – Your better credit score helps your bank to perceive you as a less-risky borrower. As such, you can ask for concessions on processing fees, higher loan to value ratio (amount of loan against the value of the security) etc. and given your good credit score, such requests can be definitely expected to be considered favorably by the bank as well. Any saving is a good saving, nevertheless.
4. Get approved for higher limits – With a good credit score, you get reflected as a healthy borrower with lower credit risk for the bank. As such, you may also be approved for higher limits against your credit card/ loan etc. However, do make sure that you genuinely need such higher limits before choosing to avail them. After all, the money you are going to use is just a loan and you need to repay it one fine day.
5. Bragging rights – This is more linked to your psychological need. A good score highlights you as a responsible borrower who makes his payments against the debts on time. As such, you can rightfully brag about it within your friends network.
“Keeping all other things aside, let me focus on the last point mentioned by you.” Rakesh quipped.
“Definitely. I have always believed about appreciating good things in life, be it your credit score or a cup of tea. Masala tea or ginger tea?” Aditya was all into smiles as he offered Rakesh a cup of tea.