Credit score will decide your loan's interest rate; here's how to check it
Government of India has been pushing for cash-less economy and people are left with no other option but to opt for digital mode.
According to the Reserve Bank of India data, till February, 2017, there were 29.1 million credit cards which were in operation.
Also, banks have been slashing the interest rates, which has made taking loans a "preferrable option".
Now, if you are thinking what is the relation between credit card and loan, then here it is. Credit score.
Credit score can be defined as creditworthiness of a person coded into a three digit numerical expression. Credit score is the determining factor for the approval of a loan or credit card application. This score is affected by a range of factors like payment and borrowing patterns, number of credit card or loan applications, credit utilization etc, as explained by PaisaBazaar.
Why credit score is so important?
The average credit score is said to be about 750 and anything below 750 is usually considered as a bad credit score.
Navin Chandani , Chief Business Development Officer, BankBazaar said, there are several reasons as to why you should preferably maintain an above average credit score.
1. Loans: Banks consider your credit score while determining your loan eligibility. A good credit score will instil confidence about you in banks and financial institutions.
2. Credit cards: The credit score is the first thing that banks check. Usually, the banks have a credit score of a minimum 750 or more as the eligibility criteria for a credit card. The bank will reject the application if the applicant has a poor credit score.
3. Rate of interest: A good credit score means that you have a strong track record of paying back your debts on time. This gives you a higher preference, and therefore, bargaining power while applying for a loan or credit card. This can translate to a lower rate of interest.
4. Higher limits: A good credit score will not only get you a lower rate of interest on your credit cards and loans but it will also help you in getting a higher loan amount with your loans and higher credit limit on your credit card.
5. Future credit: Even if you are not considering a loan right now, a good credit score will be essential when you apply for home loans, credit cards, or any other credit product in future. Having no credit score or credit history is just as worse as having a poor credit history or poor credit score.
How you can maintain good credit score if you have a credit card?
- Do not borrow more than what you can repay easily
- Make payments on loans and credit cards on time without defaulting
- Keep the credit utilization on your credit card low – preferably between 10%-30% of your credit limit
- If you wish to spend more using your card, request banks to increase credit limit on your credit card
- Do not apply for too many loans or credit cards unless absolutely necessary
- Do not close old credit cards – older your repayment history the better would be your Credit Score
- Do not apply for cards without checking your eligibility as frequent rejects can affect your credit score
Hence, before getting a new credit card or applying for loan, do not forget to check your debt utilization.