Tuesday, 23 Jul 2019

Why You Should Maintain a Good Credit Score

Being financially independent not only means having good savings, but it also means you can repay any existing, or future debt. One way to look at it will be to evaluate your CIBIL score. If you are financially stable, you will pay your bills on time, and that will improve your credit rating. On the other hand, a poor credit rating will imply just the opposite, making you less creditworthy in the eyes of a lender.

You will face difficulties applying for any advances with a bad CIBIL rating. It can be crippling if you need to avail an unsecured credit like a personal loan in a financial crunch. Credit score of 750 or higher is an essential personal loan eligibility criteria.

Why does a good CIBIL rating indicate financial independence?

The parameters that determine your CIBIL score also indicate your financial condition. The CIBIL rating ranges from 300 to 900 and it is calculated based on your financial history. Factors credit institutions use to calculate CIBIL ratings are –

  • Loan and bill repayment history – Defaulting on any repayment will negatively affect your credit score. It indicates you do not have enough funds, or not financially responsible for paying back the lender. This makes you appear as an individual who is not creditworthy for loans. 
  • The absence of any previous loans – Your credit score will be bad if you haven’t availed a loan or used a credit card before. Credit companies will not be able to 98-; because of the absence of your credit history.

Generally, this indicates that you do not have a steady source of income and financially dependent.

  • Applying for too many credit cards or loan in a short period – A financial institution will request for your credit report whenever you apply for a credit card or a low interest rate personal loan. If the credit bureau notices that there have been too many requests in a short period, they will think you are desperate for funds and will give you a poor CIBIL rating.
  • Having an uneven credit mix – 10% of the weightage of the CIBIL score calculation depends on what type of loans you have availed in the past. Try adding different kinds of credit to your financial portfolio.

Lenders will offer you larger credit and negotiable interest rates on personal loan if you are financially independent and carry a good credit rating. Companies like Bajaj Finserv provide loans of up to Rs. 25 Lakh with flexible tenure, instant approval and affordable EMIs to borrowers.

Bajaj Finserv also provides pre-approved offers for personal loans, business loans, home loans and a range of other financial products and services. This saves you time and keeps the process of availing financing simple.

What are the ways to become financially independent and to boost your credit score?

Your credit score will be on the lower part of the scale if you haven’t availed a loan before, or missed out on due payments. Fortunately, there are some easy ways to boost it up, along with your financial condition. Let’s take a look.

  • Always make timely payments – Timely and prompt payments is one of the main ways used by borrowers to increase their CIBIL score. It shows that you are responsible and that you have a stable source of income to repay your debts. 
  • Proper credit utilisation – If your credit utilisation ratio hovers around 30% to 40% of the credit limit it will indicate that you are less dependent on borrowing. That is a sign of a good financial condition. 
  • Good FOIR ratio – If your FOIR (Fixed Obligations to Income Ratio) is below 30%, you will be viewed as a creditworthy borrower who knows how to handle income and expense.

Living by your means, utilising debts wisely and reducing what you borrow will make you a responsible and financially independent borrower. You will be able to apply for a hassle-free personal loan with ease and will have more money in your pocket to save or invest.