The Drawbacks of Ignoring Your Credit Score

Knowing your credit score is like having a map of your financial health. Not consulting it from time to time can make you lose your financial path! In all seriousness, failing to pay attention to your credit score can expose you to financial risks in multiple ways.

By understanding the importance of your credit score, you can take the required steps to improve it if the need arises. This can help you avail of loans on favourable terms, helping you get credit quickly and save money during repayment. Furthermore, having a good credit score enhances the possibility of obtaining attractive pre-approved loan and credit card offers from lenders.

Why? This is because your credit score acts as an indicator of your creditworthiness. As a result, your score impacts your eligibility for a loan as well as your cost of borrowing, making it a vital factor for your financial well-being.

Read on to understand the drawbacks of ignoring your credit score and how to check CIBIL score, a popular credit score, in India.

4 Drawbacks of Ignoring Your Credit Score

Ignoring your credit score can have serious consequences impacting your financial future. Check out a few drawbacks here.

Limited Access to Credit

By not monitoring or improving your credit score, you may have a low score. And this could decrease your chances of getting a loan or a credit card when you need one during emergencies.

A low score also keeps lenders from offering you pre-approved loans or credit cards, which often come with pocket-friendly perks. On the other hand, maintaining a good credit score can help you avail home or personal loans hassle-free.

High Interest Rates

Even if a lender approves your loan despite having a low score, you will most likely pay higher interest rates. A low score indicates less experience with different types of credit, missed EMIs, defaults or high credit utilisation ratio. This can also make you look like an irresponsible borrower.

To make up for the increased risk, lenders then charge you higher interest rates. So, a low credit score can result in higher loan expenses, which can accumulate considerably over time and actually cost you money.

Difficulty in Approval of Loans or Credit Cards 

Most lenders look at your credit score when deciding whether to approve your loan application. A low credit score can delay or even lead to a denial of approval. This can be frustrating and prevent you from getting the funds you want when you need them most.

Similarly, your credit card application may get rejected when your credit score is low. In fact, credit card companies keep premium cards with great features for those with great credit scores. To sum with, with a good credit score you can get the loan amount or credit card you desire and vice versa.

Losing out on Negotiation Power:

By not knowing what your credit score is or how to check CIBIL score, you undercut your power to negotiate with a lender for better rates or higher loan amounts. If you have a good score and know that is considered good, you can discuss your options and secure a deal that truly works for you.

How to Improve Your Credit Score

Improving your credit score is a gradual process that demands effort and patience, but the advantages of having a good credit score are numerous. Here are 5 valuable tips to help you boost your credit score:

Check Your Credit Report Regularly

Your credit score is based on your CIBIL report, an extensive record containing crucial information about your credit history, such as your repayment history, credit accounts, and outstanding balances.

Regularly reviewing it can help you detect any errors or inaccuracies affecting your credit score negatively. You can check your credit report from each of the three major credit bureaus:

• Equifax
• Experian
• TransUnion

If you are wondering how to check CIBIL score, simply follow these steps.

• Step 1: Visit the CIBIL website
• Step 2: Click on ‘Get Free CIBIL Score & Report’ on the homepage
• Step 3: Fill in the form to create an account
• Step 4: Click ‘Accept and Continue’ and verify your identity by uploading a few documents
• Step 5: Enter the OTP and access your credit report and score

Pay EMIs and Credit Card Bills on Time

Your repayment history is a critical factor in determining your credit score, and any delayed or missed payments can harm your score. To avoid negative consequences, pay your monthly loan instalments and credit card bills on time every month. Setting up automatic payments or payment reminders can also help you avoid late charges.

Utilise Credit Smartly

Your credit utilisation ratio is a critical factor that impacts your credit score, representing the proportion of the available credit you are using. Hence, it is crucial to maintain your credit card balances below 30% of your total credit.

For instance, if you have a credit limit of ₹5 Lakhs, keep your credit card balance below ₹1.5 Lakhs to maintain the ideal credit utilisation ratio. Doing so can help improve your credit score and enhance your chances of obtaining favourable loan terms and other financial services.

Don’t Apply for Multiple Credit Options Simultaneously

Whenever you apply for credit, it triggers an inquiry on your credit score which brings your score down a notch. As you apply for multiple credit facilities, such as personal loans from different lenders or many credit cards, these credit inquiry requests increase. This can lower your credit score significantly. To avoid this, apply for credit only when needed and only when you know you qualify for it.

Consider Credit Counselling

If you are struggling with debt or finding it difficult to manage your finances, consider speaking with a credit counsellor. These professionals can help you develop a budget, manage debt better, and improve your credit score. Remember to choose a reputable credit counselling agency if you go down this path.

Improving your credit score is simple but requires consistency and financial discipline. So, pay attention to your credit score before you are financially limited from availing credit affordably.

Checking your credit report regularly, paying your bills on time, and using credit responsibly are key steps to boost your credit score. Doing so gives you umpteen credit options, lower interest rates, and many other benefits. So, take control of your financial future and take your credit score seriously.

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