Checking your credit score can give you higher chances of getting your loan approved
Your credit score defines your creditworthiness. Lenders look at your credit score to decide whether to approve your loan application or not. A higher credit score reflects better creditworthiness and thus increases your chances of getting your loan approved.
A credit score is a key piece of financial information and is crucial for your financial health. Therefore you should be checking it regularly to keep yourself informed and better equipped to improve your financial standing.
In this article, we have outlined six reasons why checking your credit score regularly is a good habit:
1. It is free once a year
You are entitled to receive one free CIBIL score/credit report every year from TransUnion CIBIL. You are also entitled to receive a free credit report once a year from the other three other credit bureaus (Experian, Equifax and Highmark) as well. So, make the most of this free service.
2. Checking your credit score doesn’t hurt it
It’s a myth that checking credit score harms it. There are two types of credit enquiries – hard enquiries and soft enquiries. A hard enquiry occurs when a prospective lender reviews your credit report to make the lending decision. This type of enquiry lowers your credit score temporarily.
On the other hand, a soft enquiry occurs when you request a copy of your credit report. This type of enquiry doesn’t have any impact on your credit score.
3. You get to know your financial standing
Regularly checking your credit score is good for your financial well-being. You get to know where exactly you stand as far as your creditworthiness is concerned.
If your score is high (750 and above), you need to engage in activities that can help you stay at the top. Some good practices to follow are paying your credit card bill and loan EMIs on time.
If you have a poor credit score, it's an indication that you need to take action to improve your score.
4. It’s a way of ensuring that your credit score is always in the green
If your score is high, you are in the green and are considered a credit-worthy borrower. But, staying at the top requires patience and financial discipline. Checking your credit score regularly is one way of ensuring that you aren’t slipping into the red zone. If you find your credit score in the red zone, it won’t be easy to get a loan when you need funds. Keeping an eye on your credit score will help you take some remedial steps to keep your score from dropping.
5. You can predict the outcome of your loan application
When you apply for a credit card or a loan without checking your credit score, you are taking the risk of getting rejected due to a poor credit score. This can hurt your credit score and further reduce your chances of getting a loan in the future.
Checking your credit score before applying can give you a fair idea of whether you should apply for a loan or not. If your credit score is above 750, your chances of getting a loan are high. If your credit score is below 700, you should consider improving it before applying for a loan.
6. You get useful insights about your credit score
When you review your credit report, you'll better understand how a credit score works. The credit report highlights all the factors that influence your score. Each of these factors contributes to your score differently. You can easily study these factors and understand what’s working for you and what isn’t. You can then focus on areas that are pulling your score down.
The author is a Financial Analyst at MoneyTap
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.