Credit Score in India is a relatively new concept which has come into the mainstream less than a few years ago. Most people in India are still not aware what a credit score is. Well a Credit score is a three-digit number that represents your creditworthiness. It is an important factor that lenders use to determine whether to approve your loans credit card applications and at most importantly at what interest rate. In India, there are four main credit bureaus that provide credit reports and credit scores. These include CIBIL, Experian, Equifax, and CRIF High Mark.
Your credit score is calculated based on various factors such as your payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries. Each credit bureau may use a different algorithm to calculate your credit score, but they generally range from 300 to 900. A higher score indicates better creditworthiness and makes it easier to get approved for loans and credit cards at favorable terms.
It's important to have a good credit score because it can affect your financial well being in many ways. A good credit score can help you get approved for loans and credit cards with lower interest rates, which can save you money in the long run. On the other hand, a low credit score can make it difficult to get approved for credit and may result in higher interest rates, which can cost you more in interest and fees.
Lets see a example of how a good credit score can be beneficial and save you significant amount of money
Lets say two people Ravi and Priya both applied for a home loan of 10000000 for 20 years. However, Ravi has a credit score of 820, while Priya's credit score is 720.
As a result, Ravi was able to secure a home loan at an interest rate of 8.5%, while Priya had to settle for a higher interest rate of 9.25%.
Here's the total difference in interest payments over 20 years:
Ravi's interest rate: 8.5%
Monthly payment: Rs. 84,144
Total interest paid over 20 years: Rs. 1,02,84,040
Priya's interest rate: 9.25%
Monthly payment: Rs. 89,707
Total interest paid over 20 years: Rs. 1,18,93,680
As you can see, the difference in interest rates may not seem like much, but it adds up over time. In this case, Priya will end up paying Rs. 16,09,640 more in interest over the course of 20 years compared to Ravi, simply because of her lower credit score.
This example demonstrates how having a good credit score can make a significant difference in the amount of interest you have to pay on a loan. It's important to keep your credit score in good standing to ensure that you can access the best interest rates and save money in the long run.
In addition to affecting your ability to get approved for credit, your credit score can also affect other areas of your life. For example, some landlords, employers, and insurance companies may check your credit score before renting to you, hiring you, or offering you coverage. Therefore, it's important to keep your credit score in good standing and regularly check it for errors or fraudulent activity.
In conclusion, credit score is an important factor that affects your ability to get approved for credit and can impact your financial well being. It's crucial to keep track of your credit score and ensure that it's in good standing. By regularly checking your credit score, you can detect errors and fraudulent activity early, and take steps to improve your credit health.
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