Importance of credit scores cannot be undermined for future borrowers.

A credit score tells about your past credit behaviour. Have you been repaying all or some of your EMIs on time? Have defaulted on loans? Are you a serial loan taker? Do you take more unsecured loans than secured ones? How often you get into credit card debt? Your credit report and score answer all these questions.

Having a good credit score tells the lender that you are a low-risk borrower and hence, can be offered loans at lower interest rates. This can mean a lot of savings. Even one percentage point reduction in a 5-year personal loan of Rs 20 lac can savings of atleast Rs 1 lac in interest costs.

So it does make sense to have a good credit score if you will need to borrow heavily in few years time.

But how to build it?

A simple way to improve your credit score is to take a small personal loan that you can repay easily. Start repaying that loan regularly and do not miss payments for any reason. Slowly your credit score will increase. Given that current personal loan rates are at multi-year lows, it’s a great time to implement this approach.

It will not cost you much but will save you several lacs after few years.

A good credit history of the applicant is most important factor for majority of lenders. Everyone wants to lend to a person who has a very low chance of defaulting.

So once that personal loan is paid off and you have accessed your credit report to confirm the improvement of credit score, you can approach the lenders to take larger loans.

A small effort on your part can go a long way in improving your credit score.


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