Posted on 4th March, 2019 | Category: Business | 6 min read
A credit score is your credit history graded and expressed in a number. It is a numerical grading system that lenders use in order to calculate the risk involved in giving you a loan. A good credit score means low risk for the lender and therefore converts to a better lending experience for both the customer and the lender.
Your credit score says a lot about how well you are able to manage your finances. Based on your credit score, the lender is able to understand how responsibly you’ve managed loans and other financial obligations over the years.
Managing money is not about how much you make, it is about how well planned you are. It simply translates to a very basic skill of understanding your spending habits
The discipline of not over-spendingand making too many impulse purchases.
Prioritising your expenditure.
Paying your EMIs on time
A high/good credit score does not mean you have a lot of money, it means you have managed your finances effectively. For a lender, a high credit score means the customer has not defaulted on payments and has been disciplined in their spending habits.
It is very important to maintain a good credit score for hassle-free borrowing. A bad credit score doesn’t necessarily mean you won’t get a loan but you may end up getting loans at a very high rate of interest. It can upset your long term aspirations of either buying a house, taking a dream vacation or even retiring on time.
There are two sides to every coin. A company that has a large amount of debt may not be able to make its interest payments if sales drop. Conversely, a company that uses no debt may be missing out on important expansion opportunities.