A good credit rating increases your chances of securing loans and credit cards with favourable terms and interest rates; a poor credit rating may lead to borrowing difficulties, high interest rates, and damaged future opportunities. Hence, credit rating importance cannot be emphasized enough.
There are several factors that a person must consider when working towards keeping their credit rating healthy. The first and foremost is paying off credit card bills on time. Timely payment is a clear indication of a borrower’s capacity to manage debt effectively and responsibly. One way to ensure timely payments is to set up automated payments through a credit card or bank account. This will not only prevent missed or late payments that can negatively impact the credit score but also helps in fast-tracking payments and reducing interest rates.
The amount of money owed to the lender is another critical factor affecting credit rating. It is the amount of credit card debt or loans that one has outstanding and is expressed as a balance-to-limit ratio. If the outstanding balance is more than 30% of the credit limit, it can negatively impact the credit score. The best way to keep the balance low is to pay off as much of the outstanding balances as possible. However, try not to carry a balance on the credit card as it incurs high-interest rates that add to the debt burden.
The length of the credit history is another factor that lenders consider while assessing creditworthiness. The longer the credit history, the better the credit score. For those who are starting their credit journey, it is a good idea to apply for a credit card with a low credit limit and use it responsibly. Opening new accounts simultaneously can negatively impact credit ratings, so limit new credit applications.
Credit utilization can be improved by starting with a secured credit card or by using an EMI card. An EMI card, also known as Equated Monthly Installments, is a loan facility bundled with a credit card. The cardholder can use the credit line to purchase items and convert the transaction into monthly instalments, spreading the payment over several months. There are several advantages to using EMI cards, such as ease of repayment, low-interest rates, and no hidden charges. Applying for an EMI card is easy, and several banks offer them to eligible customers. A credit-worthy client is given the facility of an EMI card that can be used to pay for everything from groceries to big-ticket items like appliances and electronics.
The mix of credit is another vital factor that lenders consider while evaluating creditworthiness. A mix of credit indicates a good balance of various types of credit, such as mortgage loans, auto loans, and credit cards. The idea is not to have too much of one type of credit, but to have a healthy mix. A mix of credit types shows lenders that borrowers can handle various kinds of credit and have a diverse financial portfolio.
In conclusion, credit ratings play a significant role in the financial world, reflecting a person’s credit history and financial reputation. It is important to manage credit responsibly and take steps to improve or maintain a good credit score. These steps include making timely payments, keeping the credit utilization low, and applying for credit wisely. One such wise move is to use an EMI card for purchases. Applying for an EMI card is made easy by banks and helps manage monthly expenses without incurring high-interest rates. Ultimately, good credit ratings lead to financial opportunities and improved quality of life.