Your credit score is a three-digit number that represents how creditworthy you are in numerical form. Those with credit scores of 750 or above are often eligible for larger loans and can take advantage of a wider range of financial perks. This is because lenders regard credit scores of 750 and higher to be good. Because of these advantages, monitoring your credit score and taking the appropriate actions to establish and keep up a strong credit score are becoming increasingly important.
So we are going to discuss different ways in which disregarding your credit score can hurt your finances and how to increase CIBIL score:
Higher interest rates on loans
A growing number of loan providers have begun applying the principle of risk-based pricing when determining the interest rates they charge their prospective borrowers for loans. Lenders have a tendency to tempt loan applicants with higher credit scores by offering them loans at cheaper interest rates. This is due to the fact that applicants with higher credit scores tend to have a reduced risk of defaulting on their loan repayments.
It is a common practice for lenders to charge borrowers with lower credit scores a higher interest rate in order to compensate for the higher credit risk associated with lending to those borrowers. This is because individuals with lower credit scores are more likely to fail to repay loans they have taken out. Therefore, failing to maintain a decent pan card cibil score can cause you to obtain loans at higher interest rates, which will ultimately result in an increase in the total amount you will pay in interest. And in such a case, you would need to understand ways how to increase cibil score to boost loan approval chances.
Reduced eligibility for credit cards
The function of credit cards has expanded beyond that of a simple instrument for rapid credit that can be used to finance purchases and make payments. Making purchases with a credit card can earn the cardholder a variety of benefits, including reward points, cash backs, discounts, free gift cards and vouchers, and so on. These benefits can be redeemed for cash or used to offset future purchases.
Therefore, if you use your credit card in a responsible manner, the monetary value of the perks that your credit card provides can easily outweigh the yearly fees that are assessed to your credit card. Considering that credit scores are one of the most important variables that credit card issuers take into consideration when considering applications for credit cards, individuals with lower pan card CIBIL score have a greater likelihood of having their credit card application rejected. So, not only should you keep a check on your credit score level, but also keep looking out for ways around how to increase cibil score.
Reduced eligibility for loan transfers
The annual percentage rates (APRs) that various lenders charge for the same types of loans might vary greatly from one another. Lenders, therefore, frequently have a tendency to entice existing borrowers who have their balances held with other lenders by giving balance transfer options to such borrowers at reduced interest rates. The existing borrowers have the opportunity to transfer any outstanding loans to other lenders who may offer them at more favourable interest rates through the balance transfer option.
As a form of compensation, the new creditors settle any outstanding debts that the borrowers may have with their previous creditors. Some lenders also have a tendency to give lengthier payback tenures to borrowers who are transferring their existing loans. This assists these borrowers in reducing the amount of money they have to pay in monthly instalments (EMI).
When deciding whether or not to approve an application for a loan balance transfer, the lenders will, just like they would with an application for a new loan, consider the borrowers’ credit score as well as other aspects of their credit profile. When determining the interest rate that will be applied to the transferred loan, certain lenders may take into consideration the borrower’s credit score as well. Because of this, having a pan card cibil score that is considered to be “poor” can prevent you from taking advantage of balance transfer alternatives, which otherwise can help you reduce the amount of money you pay in interest and the amount of money you pay in monthly payments. So it’s better to first be aware of how to increase cibil score and then, after improving it, apply for a balance transfer with a suitable lender.
A rise in the interest rates as well as the fees and other costs associated with loans
Just like the interest rates, some lenders have begun waiving or charging lesser processing fees and other costs to people with higher credit ratings. Because the processing fees and other charges that are levied during the application phase of the loan can constitute a significant amount, particularly in the case of large ticket loans, having a low credit score can prevent you from taking advantage of the reduced or waived processing fees that are available during the application phase of the loan.
Absence of pre-approved loans and credit card offers
Many different lenders and online financial marketplaces have a tendency to give pre-approved loans, and credit card offers based on the pan card cibil score and credit profile of the customers. However, these kinds of loans come with pre-approval, which typically means they have greater product features, lower fees, and possibly even a shorter processing time. These pre-approved loans would make it possible for you to receive an accurate picture of your eligibility for loans and credit cards, and they could also be of assistance to you in bargaining with other lenders to secure a better loan offer.
So, by now, you must have got a pretty clear idea about why having a good credit score is not enough. It is equally important to maintain it in order to remain financially strong and be credit ready whenever required in life.