What is a Credit Score? Why is It Important to Start Building Your Credit Score?

We may never run out of things to buy, places to be, food to eat, cars to drive, or clothes to wear. Human desires are, after all, infinite. However, unsurprisingly, so are human needs. So when we want to buy and own beyond our financial capacity, loans become our go-to options. 

But have you ever wondered how we qualify for one? This is where credit score comes into the picture.

What is a credit score?

A credit score is a three-digit number between 300 and 900. It shows how well a borrower can manage the loan amount they borrowed. So, the higher the score, the better the ability of the manager.

Moreover, credit scores are calculated by the credit bureaus like CIBIL. They usually consider factors like repayment records, credit history, credit mix, credit utilisation, credit inquiries, etc., to compute your credit score.

Additional Read: What are the Types of Credit Scores?

Importance of building your credit score

A good credit score is your ticket to snag attractive deals on credit cards, personal loans, home loans, and a lot more. It is also the first thing lenders check when you apply for a credit facility. However, that’s not all. With a good or decent credit score, you can reap the following benefits:

• Lower interest rates: A high credit score demonstrates a higher degree of ability for loan repayment. As a result, you are more likely to qualify for a loan at lower interest rates and save substantially on interest payments.

• Improved approval rates: Most financial institutions favour applicants with a higher credit score when extending financial products like credit cards and loans. Therefore, you’re more likely to get approved if you have a credit score over someone who has no credit history, to begin with.

• Excellent credit card offers: With a credit score, especially a good one, you will have access to some of the most rewarding credit cards. While the rewards like cashbacks, retail points, etc., may not look much at the outset, they can save you a lot on the interest charges.

How to build your credit score?

If you’re just starting your financial journey, you can use the following methods to build your credit score:

• Open a line of credit. A credit card is one of the easiest ways to build credit, provided you use it responsibly. However, don’t apply for too many all at once.
• Take a small personal loan, preferably a sum you can repay comfortably. With timely EMI repayments, you can build your score in no time.
• Use your credit card frequently; however, keep your credit utilisation low.

Additional Read: How to Make a Credit Score Calendar for Building a Good Credit Score

To sum up

A good credit score can open a lot of doors for you. They can help you meet various life goals. However, if you’re looking for a way to achieve your goals without relying on credit, mutual funds investments are a great option.

To learn more about the same, log onto the Moneyfy app and get all the information you need.