There are people out there who do feel that the credit score is not something that would need to be administered regularly. This is on account of the fact that this score of one's historic performance on credit does not impact day to day life. But this notion is as wrong as one not taking care of the physical wellbeing. Credit scores are an integral part of one’s financial health. At least in today’s day and age; where each individual needs access to funding from lending institutions to meet their financial objectives.
Following are the six ways how your credit score can make or break you. Each one of them is equally important and is not given in the sequence of its standing.
Availability of funding from banks is vital to our existence today. Whether one is looking at buying a house, a car or some is need of funds for any other reason in personal capacity, or is in needs of money for the business venture, the credit score plays a vital role in the access to capital. A low credit score can lead to rejection of loan application. And in the event of the application getting accepted the loan terms might not be favorable. Non availability of funds can lead to both personal and professional loss.
Taking cue from the above point, let us look at one example. Both Kush and Sahil applied for a housing loan of Rs 50 lakh. While the home loan interest rate offered to Kush was 9.5%, Sahil was able to secure the loan at 8.5%. On a 20 year term Kush would be able to save lakhs of rupees in comparison to Sahil who would be shelling out a higher EMI every month. Given the fact that one may require multiple loans through the working life (for buying cars, investing in properties, or personal loans for varied use) the quantum of money saved would be quite high if one is on the right side of the score point.
Even the loan terms can be highly unfavorable for the ones even with not so good credit score. Again taking an example, Kush and Sahil applied for a loan against property worth Rs 50 lakh. While Kush was extended a loan of 60% against the value Sahil was approved only a 45% of loan to value of property. This leads to a gap of 7.5 lakh despite having similar eligibility and similar collaterals. Sahil even had no option but to cough up a higher processing fee and a lower term of repayment. All these made the viability of loan much unfavorable in comparison to what Kush was able to enjoy.
Do not believe in this statement? Let us look at an example. Both Kush and Sahil needed funding of 10 lakh to encash one of the business opportunities that came their way. This deal would help in making their businesses grow. Unfortunately, Kush was able to get a speedier approval and was able to invest into the opportunity, Sahil's loan application got dragged and he was unable to meet the requirement within stipulated period. He even tried getting a personal loan for low cibil score but unfortunately that also took much longer to get decisioned.
This may sound a little bizarre but it quite relevant. A person with good credit score enjoys all sorts of credit limits. Beat it a credit card with topped up specific rewards or an overdraft limit at low cost, the person with low credit score can neither enjoy the limits nor can get these priced rightly to make most of the loan cost.
This may sound strange. Most of people may think that the abilities of an individual will be the sole criteria for one to bad a job, which may not be true to all. Especially the jobs related to financial sector where the institutions have the capability to access one’s credit bureau report. There have been instances where the prospective employer has asked the candidate to furnish the bureau report before extending the offer.
The credit profile of an individual has all the capability to make or break one's financial life. Hence it becomes quite important for everyone to take care of this important aspect as one would care for the money in the bank or any other asset.