World Health Day: Why a credit score is vital to your financial health


If we had a penny for the number of times we heard the cliched phrase “health is wealth”, we’d all be millionaires.

Undoubtedly, this saying is quite true. Only if you are in good health can you can enjoy your wealth. But did you know the health of your credit history also affects your wealth? Your credit history is a pivotal part of your financial life. Here’s why you need to maintain good credit history.

Every person encounters a point in their life when they need extra help with their finances. A loan comes in handy in such a situation. It comes as no surprise that working professionals areincreasingly opting for loans for things like buying a home, to spending money on travel. A lot of people are also opting for alternate forms of credit like a credit card to get various benefits like cash back, reward redemption and discounts.

Another buzz word in the industry is a line of credit, which enables one to be ready to face any unannounced expenses encountered at any point in time. The process to attain these credit options are fairly simple. You can choose a lender and apply to them offline. Alternatively, you can compare multiple lenders online and apply via online portals. Even though the process is easy, there is an important factor that one needs to keep in mind before they begin.

When you apply for a credit card, loan or even a line of credit, your lender will definitely run a check on your credit score. They will decide the amount of risk you pose to them, or in other words, your creditworthiness, through your credit score.

A credit report is what determines whether or not you are eligible for any type of credit, and if it involves interest rate, your credit score will be one of the most crucial factors in determining that as well.

If you have a poor or bad credit score, lenders may not necessarily shun you, but instead, they'll let you borrow money at a higher rate (sometimes much higher) than the interest rate paid by someone who has a better credit score.

Having a good credit score is not rocket science that will take a lot of effort. It is a pretty simple concept. Once you get a hang of how it works, rest will be a cake walk. Here are a few things that you need to keep in mind in order to ensure that you have a good credit score–

  • If you own a credit card, it is crucial that you pay your bill before the due date and in full. Paying partial balances can lead to accumulation of interest and debt. This will adversely affect your credit score.
  • If you have any ongoing loans, make sure that you pay the EMIs on time. Any default on the EMI payments will be reported and impact your credit score negatively.
  • Check your credit report frequently to monitor any fraudulent transactions. This will also help you in keeping track of the progress you are making
  • Do not use the entire limit on your credit card, keep your credit utilisation ratio as low as possible.
  • Do not apply to too many lenders at once, every hard inquiry has a negative impact on your credit score.

Apart from these factors that determine your credit score, there are things that also affect the approval of your loans and credit cards. For example, one must always consider their debt-to-income ratio before applying to a particular lender.

Chances are that if you have too many existing debts, the lender will shy away from giving you another loan. This is because you are portrayed as a risky borrower.

Another factor could be that your details might be wrong on your credit report. For example, you might have an old address,where a defaulter used to reside. It is highly probable that the address would be blacklisted by lenders, and your loan application will not be accepted.

Using credit responsibly is the key to having a good credit score. And maintaining a good credit score is crucial if you wish to avail any type of credit in the future. In order to get the best offers on personal loans and credit cards, one should always maintain a good credit score.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)


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