When you are planning to apply for any kind of loan, your credit score is the first factor that is pulled up. A high credit score is important for millennials to be future ready by getting the best loans with the best terms.
Indian millennials are under constant pressure to ‘get settled’ as soon as they start earning. This broad term ‘getting settled’ can be anywhere from getting a well-paid job to owning a house. Marriage, car and kids are part of these too. It is practically not possible for any youngster, who has just started working, to achieve all these material possessions with their salary alone.
That is when home loans, car loans and personal loans come to their aid. Individuals can get loans starting from Rs.50,000 up to Rs. 10 crores for various purposes. Your loan eligibility is determined based on your credit score, income, job, age and other liabilities. Based on these factors, your loan amount and interest rate will differ.
What Is A Credit Score? How Does It Help Your Loan Eligibility?
Your Credit Score is a 3-digit number that reflects your creditworthiness. This figure, which varies from 300 to 900, is used by lenders to determine your creditworthiness while processing your loan application. It’s based on your credit history, which is taken from information in your credit report’s ‘Accounts’ and ‘Requests’ sections. The closer your credit score is to 900, the more likely your loan application will be approved. A credit score of 750, according to experts, is excellent if you want to receive a good loan with a low interest rate and other benefits.
CIBIL, Equifax, CRIF High Mark, and Experian are the four authorized credit bureaus in India. A person is entitled to one free credit report every year. You have the option of requesting a credit report and credit score from any of the four credit bureaus.
Why Should Millennials Aim To Achieve A Good Credit Score?
During the loan application procedure, your credit score is very essential. An excellent credit score guarantees a large loan amount and low interest rates. You must check your credit score on a regular basis and take all required efforts to keep it at a good level.
Loans with low interest rates: People with good credit scores can get any sort of loan with a low interest rate. This is an added benefit of having a high credit score. A high-interest loan can put a strain on your finances and become a burden in the long run.
Higher approval rate of loan and credit cards: Because a good credit score reflects sound financial practices, lenders are less hesitant to extend additional credit to people with good credit scores.
Higher credit card limits: A good credit score may qualify you for higher credit card limits. Higher credit limits can help you maintain a low credit utilization ratio and consequently boost your credit score.
More negotiation power: Having a strong credit score gives you more negotiating leverage with the lender. You may haggle for a cheaper interest rate on loans and receive your preferred credit card, which comes with a slew of perks.
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What Should Millennials Do To Build A Healthy Credit Score?
When you are freshly employed and have started getting those paychecks, there is nothing against your name to build a credit report. Only after you get your first credit card or first loan will your credit report account start. If you put in the right efforts from the start, you can achieve a stellar credit score soon and get the best loans.
The primary factors that affect your credit score are:
Payment History
Credit and loans you owe to lenders
Length of your credit history
Number of credits you have applied in the recent past
The types of credits and loan types you hold
Financial discipline is critical for someone who is developing credit from the ground up. To ensure that you make timely payments toward your debt, you must carefully arrange your monthly finances. You could achieve and maintain a good credit score by following these simple steps:
Start with an Installment Loan
Take out a small loan and start repaying it. This is one of the most effective techniques to start building your credit score. You can get a personal loan or student loan to start with. These are flexible loans that allow you to choose a lower loan amount, as well as unsecured loans that are considerably easier to obtain.
But ensure that you repay the loan on time and without any defaults. Making late payments will only hurt your prospects of establishing credit. Also, ensure that you’re only borrowing what you can comfortably repay. We don’t want to overextend ourselves and harm our credit score instead.
Don’t miss payments
Keeping track of your monthly payments and making sure they’re paid on time is essential. Missed payments have a bad impact on your credit ratings, even if it is a legal omission. You can use tools like auto debit, standing instructions, or NEFT mandates to ensure that monthly EMI payments are made on schedule. If you’re paying by check, send it in long before the due date to allow for the clearance period.
Limit your credit utilization ratio
One of the simplest strategies to increase your credit score is to limit your credit utilization ratio. Keep your credit card bill to less than 30% of your credit limit each month. Make sure your bill does not surpass Rs. 30,000 per month if you have a credit limit of Rs. 1 lakh. You’ll have problems budgeting if you use more than 30% of your credit card limit, and you won’t be able to save enough to pay off your obligations. As a result, your credit score will be hit.
Apply for a Secured Credit Card
A secured credit card is one that is issued in consideration towards a fixed deposit. Nonetheless, it has all of the characteristics and benefits of a credit card and aids in the development of credit. These credit cards are simple to obtain because they are based on your bank’s fixed deposit. This is an excellent approach to begin establishing credit.
Interesting Read: The Big 5 Top Factors That Affect Your Credit Score
Even if you make just one or two purchases per month and then pay them off, your credit history will reflect this. This will eventually help you build credit faster because your information is frequently submitted to credit bureaus.
Young professionals have a fantastic opportunity to develop a strong credit score provided they are given the proper credit and debt management advice. It is actually quite straightforward to build a good credit score from scratch. Simply remember the principles above and stick to a strict financial plan to attain your financial goals.
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