“Credit Score” is no more a fad and a larger population, at least in the large cities of our country is now aware of the importance of these two words. But they may not be aware of the fact that the credit score can also impact their financial life and that is should not just be merely taken as one of the factors that have an impact on the availability of funds and credit instruments.
Intuitively you may know that your CIBIL rating will help you securing funds from banks and other lending institutions, but even in the situation that you are able to have access to credit facilities, the level of your credit scores can grossly impact the cost of credit. To understand this better, let us first understand what this CIBIL score is all about.
Your credit score is a three digit numeric expression that depicts the risk associated with lending money to you. The lower score means that a larger risk is associated in lending to you. In India, the score ranges between 300 to 900. A score of 750 is assumed to be a good score. How these scores will impact your pocket is what is being explained further.
Cost of funds
Your score can directly impact your cost of funds. All banks would like to have those borrowers on board who would presumably not default. And hence a borrower with a higher score will get pitched with lower interest rates, better terms and even waiver or discounts in processing fee. All these will have a direct impact on the cost of funds. Let us understand it better with the following example:
Ramesh took a loan of Rs 5 lakh @ 18% for a term of 60 months and Suresh got a loan of similar amount and term @ 13% interest rate.
As we see, Shyam had a straight saving of Rs 79,000 just by the virtue of having a better score.
A life time saving
In today’s day and age, one would take multiple loans and avail different credit facilities to meet varied needs at the different time of life. A healthy credit score will only result in saving of lakhs of rupees.
You would take at least two/ three car loans, one home loan and may be a few personal loans apart from other consumer loans. Just by the virtue of being on the right side of bureau, you would be able to save a fortune.
Availability of credit
The availability of credit also plays an equally important part. Not getting funds from lenders can lead to loss of opportunity and even distress in case the requirement is on account of an exigency. Let us again understand this from an example.
Ram got an opportunity to buy a house where the owner wanted to complete the deal in one month and was also willing to negotiate on the cost as against the market price. While Ram was able to get a fantastic quote on the property that he liked and would have preferred to stay in, he was unable to secure the loan in the given time frame. This led to deal fizzle out from his hand. This happened on account of low credit score. A good score would have ensured an approval in just a few days and a saving of lakhs of rupees on the cost of the property.
One should keep reviewing the bureau report and work to increase credit score. Having a good score will only help in better deals on credit front and lead to adding to the financials but as seen in the case of Ram, can also facilitate not only adding to fortune but also help in possession of what one wants to.
Happy credit health to you.
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