HomeFinancePersonal FinanceNew to credit? Reasons to make a robust credit score in 2021

New to credit? Reasons to make a robust credit score in 2021

Credit score is one particular of the 1st filters factored in by lenders whilst evaluating your loan application.

The financial uncertainties and earnings disruptions for the duration of the pandemic have re-emphasized on the significance of sustaining economic discipline in our lives. While our economic fitness is indicated by some apparent things such as savings, assets, present bank balance, investments and economic portfolio, a essential facet which is often ignored is credit score.  For the uninitiated, credit score is a 3 digit numerical representation of your credit repayment behaviour creditworthiness, primarily based on which lenders assess your creditworthiness. Those who have not availed any type of credit card or loan however are termed as new to credit.

With the new year 2021 just round the corner, it would be prudent to have a swift appear at the many added benefits of obtaining a robust credit score, and take expected measures to attain it:



Lower interest prices and processing charges on loans

Many lenders  practice risk-primarily based pricing to set lending prices for applicants. Since loan applicants with higher credit score reflect lower risk of credit default, lenders attempt to entice such applicants by extending lower interest rates to them. While in case of applicants with reduce credit scores, lenders compensate for the higher credit danger involved by charging greater interest price.



Additionally, some lenders have begun rewarding applicants with greater credit scores by either waiving off or lowering loan processing charges. Given that processing charges can constitute a substantial quantity, particularly in case of large-ticket loans, waiver or reduction of such charges can outcome in substantially pulling down the cost of credit for applicants. Such preferential therapy is hugely unlikely for loan applicants with poor credit scores.

Higher loan eligibility

Credit score is one particular of the 1st filters factored in by lenders whilst evaluating your loan application. Generally, applicants with a credit score of 750 and above have greater probabilities of loan approval, since they are thought of financially more disciplined, thereby lowering the risk of credit default. Whereas applicants with a reduce credit score are thought of as riskier prospects by lenders, which may perhaps make it challenging for them to get loan approval.

Gives access to pre-authorized loan presents

Numerous lenders and on the net economic marketplaces put forward pre-authorized loans and credit card offers based on your credit score. Such pre-authorized loans or card presents may perhaps include benefits like low interest prices, better solution features and quicker processing time. Also, these pre-authorized presents can assist you in giving you a fair idea about your credit eligibility and price of availing the credit, which may well prove to be helpful in negotiating with other lenders for landing better loan and credit card deals.

Higher eligibility for balance transfer

Lenders frequently present balance transfer alternatives to the current borrowers of other lenders, at lower rate of interest. Some lenders may even extend longer tenure solution for the transferred loan, thereby resulting in reduce EMIs for borrowers. However, similar to fresh loan applications, lenders evaluate credit score whilst extending balance transfer applications. Some lenders also consider your credit score whilst setting the interest price of the transferred loan. Hence, building and sustaining a greater credit score would enhance your eligibility to avail loan balance transfers at reduce interest price and/or reduce EMIs.

How to make credit score?

New to credit consumers can make their credit history by applying for credit card(s) and adopting disciplined usage and repayment behaviour of them. No interest is charged on credit card transactions (except for ATM withdrawals) by the card issuer, as lengthy as the complete card bill is repaid by the due date.

However, not all credit card issuers situation credit cards to ‘new to credit’ shoppers. Many applicants also fail to avail credit cards due to reasons like insufficient earnings, job profile, employers’ profile, unserviceable locations etc. Such consumers can avail secured credit cards to make credit history. These cards have similar attributes and added benefits as their regular counterparts, except the reality that they are issued against the fixed deposit submitted as collateral. Just like typical credit cards, transactions produced by way of secured cards are also reported to the credit bureaus. Adopting disciplined usage and repayment of these cards can consequently help you in gradually building a robust credit score more than the time.

(By Radhika Binani, Chief Product Officer, Paisabazaar.com)

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