There are ample myths related to credit scores in the market, so let’s unleash the relationship between a good credit score and good financial health. Credit scores are the ultimate indicator of financial health. They incorporate all the credit characteristics that exist. Explore more below to know more if a good credit score actually reflects a good financial status and how a good credit score can suggest good financial health.
Advantages of having a good credit score
A credit score is a number that is calculated by credit bureaus in the country after taking into consideration several factors like payment history, credit exposure, credit mix, credit inquiries, and the age of credit history. A credit score is a number that ranges between 300 to 900. Generally, it is considered that a good credit score is a number above 750. Therefore, borrowers are always advised to take measures to have a credit score that is closer to 900.
There are various advantages to having a good credit score. Some of them are:
- Eligibility for loans and credit cards – A great credit score gives you good faith with the banks and credit card companies. If you have a good credit score, it suggests that you have the ability and history to make payments on time. It gives your credit card companies and banks a good reason to lend you their money. This also means that you have a low probability of defaulting on the loans you have taken
- Lower rate of interest – If you have a good credit score, it is automatically suggestive that you have a great credit history. It also means that you handle your credit lines well and will pay the bank back their money on time. This implies that you may be eligible for a lower interest rate on your loans and credit cards. Considering your repayment history, there is a high possibility that you will get discounts on the interest rate for loans
- Higher credit limits on your credit cards – Your credit card limits are the ceiling you work under. You are not allowed by the credit card company to spend more than your credit limit. However, if you have a good credit score, the credit card company might comply with your wishes and increase your credit card limit. This gives you an additional avenue of spending and makes you eligible for higher spending opportunities
- Add value to your visa application – If you have a credit card score, it adds a good weightage to your visa application. A good credit score will make your case if you apply to countries like the United Kingdom and the United States of America who value a good credit history to go along with your visa application
- Future endeavours – Even if you have no plans of getting a personal loan or a credit card, you must ensure that you have a great credit score. It might come in handy when you apply for mortgages for your house in the future. A good credit score also gives you several concessions on personal loans, and credit cards by reducing interest rates on outstanding amounts in both of them. It is always better to have a credit history as it gives lenders something to measure your credit handling.
Tips to keep your credit score maintained:
- Pay all your bills on time
- Avoid missing deadlines
- Do not apply for multiple credit cards unless you don’t need them urgently
- Review your credit card report well
- Check your credit score from time to time
- Maintain a 30-40% credit utilization ratio
- Do not close old credit cards
- Keep adding on to your age of credit history
- Maintain cordial relationships with banks and credit card companies
- Do not make credit inquiries multiple times in a year
- Pay your EMIs and mortgages on time