Imagine You plan to buy your dream bike for ₹1.5 lakh. You visit the showroom, excited to take it home with a loan. But, your loan application gets rejected. Why? Because your credit score is too low. Now, you’re stuck—either save for years or pay higher interest rates if you’re lucky enough to get approved.
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This is the reality for many people who ignore their credit score. A credit score is more than just a number. It can determine the achievement of dreams or face one with various financial hindrances. Let us, therefore, see why maintaining a good credit score is important and the possible danger of neglecting it.
What is a Credit Score?
A credit score is a three-digit number, usually ranging from 300 to 900, that reflects how reliable you are in managing credit. A lender makes decisions based on this if you qualify for a loan like 20 Lakh Personal Loan, or a credit card. The higher the score, the more trustworthy borrower the lender considers you to be; a lower score marks you under risky borrowers.
- 750 and above: Excellent; you can easily secure loans with low interest rates.
- 650–749: Good; you’ll likely get a loan but may face slightly higher interest rates.
- Below 650: Risky; your chances of loan approval are low.
Why Ignoring Your Credit Score is Dangerous
- Higher Loan Costs
Let’s say two people apply for a loan of ₹20 lakh:
| Borrower | Credit Score | Interest Rate | Monthly EMI (10 years) | Total Interest Paid |
| Rahul (Good Score) | 780 | 8% | ₹24,271 | ₹9.12 lakh |
| Aman (Poor Score) | 620 | 12% | ₹28,686 | ₹14.42 lakh |
Aman ends up paying ₹5.3 lakh more than Rahul just because of a poor credit score. Over time, this adds up and burdens your finances.
- Loan Rejections
So if you get a low credit score, the banker might deny your application for the loan altogether. Your goals will tend to suffer, be it buying a new car, opening a business, or financing your child’s education.
- Effects on the Rent and the Insurance
Many landlords check credit scores before renting homes. Similarly, some insurance companies use credit scores to set premium rates. A bad score will lead only to increased costs, perhaps even denial.
Common Errors That Ruin Credit Score
- Late Payments: The easiest way to screw up your credit score is by missing payments. Even if you are just thirty days behind on a ₹5,000 credit card bill, you can drop your score by fifty points.
- High Credit Usage: More than 30% of the credit limit is a great cause of anxiety for lenders. For instance, if your total credit limit is ₹1 lakh, you should ideally keep the usage below ₹30,000.
- Ignoring Errors: Sometimes, credit reports contain mistakes, like wrong late payment records. Reviewing your report regularly helps catch these errors.
Credit Score Improvement Techniques
- Timely Payments: It is advisable to pay all your bills on the due dates every month. Just one missed payment can haunt you for months in terms of impact on score.
- Keep Balances Low: Have a credit utilization ratio lower than 30%. If your limit is Rs.50,000, don’t use more than Rs.15,000.
- Diversify Credit: Having both installment loans (e.g., home loans) and revolving credit (e.g., credit cards) can boost your score.
- Review Your Credit Report: Check your report annually for errors. Websites like CIBIL and Experian offer one free report each year.
Conclusion
Ignoring your credit score is like ignoring a crack in the foundation of your house—it may seem small now, but it can lead to bigger problems later. It not only means good loans for funding one’s needs like a 20 Lakh Personal Loan but it saves interest rates on loans. Start consciously taking those little but significant steps today-paying bills timely, keeping low balances, checking the credit report regularly. In the long-run thus, you will have built a sound financial future.
