Lower interest rates on premium loans and no-cost EMIs prove to be rewarding.
A high credit score is one of the major parameters factored in by lenders while evaluating loan and credit card applications. A high credit score, usually those of 750 & above, is considered to be a crucial financial asset having the potential to yield multiple benefits for one’s financial health.
Let us look at six financial benefits of having a good credit score:
Higher Loan Eligibility
Lenders fetch the credit report of loan applicants to evaluate their creditworthiness and past repayment history. Those with a credit score of 750 and above tend to have higher chances of loan approval as they are considered financially more disciplined and thus, have a lower risk of defaulting their loan repayments. The lower credit risk associated with those having higher credit scores has led many lenders to take credit scores into consideration while evaluating credit applications, especially the unsecured ones.
Fetch Lower Interest Rates on Loans
Many lenders started practicing risk-based pricing for setting the interest rate of loan applicants. As applicants with higher credit scores involve lower credit risk, lenders try to attract such applicants by offering lower interest rates. On the other hand, lenders compensate higher credit risk involved in lending to those with lower credit scores by charging a higher interest rate.
Given that risk-based pricing can vary across various lenders, one should compare the loan rates offered by as many lenders as possible before zeroing in on any lender. One of the best ways to do so is by visiting online financial marketplaces and compare loan offers available from various lenders based on the credit score, monthly income, job profile and other parameters.
Higher Chances of Credit Card Approval
Apart from being a source of availing instant credit, credit cards also extend various benefits in the form of discounts, cash backs, reward points, and no-cost EMIs. However, just like loans, credit card issuers also review applicant’s credit scores while evaluating their credit card applications. Hence, those with higher credit scores have a better chance of getting credit cards approved.
Additionally, a strong credit score can also help in increasing your credit limit. This can enhance your ability to spend through your credit card, thereby increasing the possibility of making big-ticket spending or even deal with financial exigencies.
Gain Access To Pre-Approved Loans
Various lenders and online financial marketplace extend pre-approved loans and credit card offers to those having higher credit scores. Such pre-approved loans or card offers may come with better product features, lower interest rates, lower processing charges and quicker processing time. Having these pre-approved offers in hand can also help to get a fair idea of your loan eligibility and the cost of availing credit. This might help in negotiating with other lenders for better loan deals.
Higher Eligibility For a Loan Balance Transfer
Lenders often attempt to lure existing borrowers of other lenders by offering balance transfer options at lower interest rates. Once a borrower transfers his loan to another lender, the new lender will repay the outstanding loan amount to the existing lender, and the borrower gets to reduce his interest cost through a lower interest rate. Some lenders also allow longer tenure for the transferred loans, thereby leading to further reduction in EMIs.
However, just as in the case of fresh loan applications, lenders factor in the credit score and profile of the borrower while extending the balance transfer option. Some lenders may also consider credit score while setting the loan’s interest rate.
Get Lower Processing Charges on Loans
As in the case of interest rates, some lenders reward applicants with higher credit scores by waiving off or reducing loan processing charges. As processing fee and other associated charges can constitute a sizeable amount, especially in the case of big-ticket loans, waiver or reduction of processing fee can significantly decrease the overall credit cost for a borrower.
The author is Chief Product Officer, Paisabazaar.com
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.