It’s often said that one should live in the present and needn’t think about the future. But, when we are talking about personal finance, future needs to be considered on priority to have a peaceful present. Be it future loans, future EMI’s to be repaid, loan tenure, future income source, and so on.
It’s true for the most part that availing a loan or credit card is not impulsive. It requires extensive research which could take up to months. People generally check their credit score only when they are thinking of availing a line of credit and they believe that if it’s low for some reason, they have an ample amount of time to get it back on track whilst they do the research on their preferable line of credit.
Since banks/lenders check borrowers’ credit score while underwriting any line of credit, the borrowers can forego the efforts to maintain a good credit score at all times, right? It’s not necessarily true. Maintaining a good credit score always comes in handy.
Importance of Always Maintaining a Good Credit Score To Combat Emergencies
If there is one fact that’s universally accepted, it’s: Emergency doesn’t wait for your convenience. It can strike at any time. You have to be prepared for every foreseeable emergency, especially for ones that require immediate cash. You can take all the time you need to gather funds while planning a vacation, but a medical emergency comes with a time constraint.
Since it’s not possible to keep a huge load of cash with us every time, we usually try to avail loans to quench our cash requirements. It’s a good thing that digitization has revolutionized the loan processing in a way that one can get loans in just a few hours, if not seconds. This has made accumulating funds in case of emergencies much easier. Although, as easy as it has become to avail loans, there are some prerequisites that banks/lenders look for when they are asked for loans.
One of the primary elements they look for is one’s Credit Score. Even during a cash crunch, a good credit score gives you the best loans for your needs and the best repayment terms for them. Conversely, a low credit score can even lead to loan rejection, causing you to panic even further during emergencies. Hence, it’s advisable to always maintain a good credit score of above 750 so that you would never face a loan rejection.
While Applying for Jobs
The importance of credit score for loans and credit cards can’t be more overstated, but recently the tool has been utilized for other purposes as well. Nowadays, some of the organizations have started gauging the candidates’ responsible behaviour through credit score. If an individual has a good credit score, it would mean that they have shown responsible behaviour towards credit and will do the same for the organization as well. Conversely, a bad credit score will deem that person as irresponsible person.
Hence, in essence, having a good credit score can improve your chances of securing a job.
When we think about the future, we often think about our income source after we retire or in case something unfortunate happens to us. Keeping that in mind, we tend to avail insurance; be it health, house, or travel insurance. But to get the benefits of an insurance policy during its maturity, we are required to invest some premium as well.
So how does credit score come into picture here?
A good credit score will help you get a lower premium on insurance. While selecting an insurance, we often look for a lower premium, as the lower the premium, the better we can meet our other expenses. Hence, possessing a good credit score will give us some sort of negotiating power to ask for a lower premium.
How To Maintain A Good Credit Score
Now that the importance of always maintaining a good credit score is understood, let’s take a look at how you can maintain a good credit score.
Repay Your Outstanding Dues On Time
You must always pay your loan EMI’s and credit card bills on time. This not only helps you save money on penalty, it also gives lenders a positive impression of your responsible behaviour.
Clean Close All Your Negative Accounts, if any
If you so much have missed a single payment, you should try to clear the issue and clean close any negative accounts, both settled and written off, you have on your credit report.
Maintain A Low Credit Card Utilization
If you consistently keep on reaching/exceeding your credit card limit, you are deemed as a credit hungry person. It’s always advisable to maintain a credit card utilization ratio (ratio of credit card spendings to credit card limit) of below 30%. To achieve this, you could either cut down you credit card expenses or ask your credit card lender to increase your credit card’s limit.
Ranjit Punja is the CEO and co-founder of CreditMantri
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