One of the most significant aspects of a personโs life is to remain financially sound so that they can maintain a healthy lifestyle, which is necessary for the well-being of a person. Here comes the necessity of maintaining a credit score, which is essential to maintaining a person’s financial stability.
Today, we are living in a world where the majority of us are making purchases or consuming items with the help of EMI options or taking a loan to complete our major events fully. In these cases, one needs to stay aware of the credit terms that one must adhere to remain in a financially sound situation.
In this blog, we will look into the aspects of credit scores and how they can help an individual to become credit-worthy and to get better financial opportunities than others.
- The Fundamental of Credit Scores
A credit score is nothing but a measurement that checks how financially sound you are, and itโs decided based on certain parameters that state how good you are at managing your borrowings and repaying them from time to time.
Now comes the concept of credit score, which is done by some of the credit authorities in every country, and it decides the creditworthiness of each individual based on certain information and by thoroughly checking the financial background of the person.
Here, using the credit score, a DSA partner can offer or customize financial products that a person needs and, based on that, can create certain offers that a person with a good credit score can enjoy.
In the upcoming part, we will address some of the key factors that will determine the parameters upon which the credit score is measured and how one can improve themselves in those parameters.
- Payment History: The Bedrock of Creditworthiness
The critical role of credit history is the most fundamental aspect that determines a person’s credit score. In the case of late payments or missed payments, a person gets ranked down due to their faults of not repaying the money owed on time.
Here, a person can prevent the charges they face when they default on their loans, and for that, get downrated, and the next time they no longer remain creditworthy, which causes trouble for a person as no lending institution trusts the behaviour of that person.
Here, one who pays their dues in a timely manner and also maintains the terms provided by the lender gets rewarded, and the next time, the borrower is eligible to get loans of a higher amount.
One of the best ways to avoid late fines and delayed payments is through activating the mode of auto deduction and allowing the lender to make auto payments of the due from your savings account.
- Credit Utilization: Balancing Act for Financial Stability
There is another metric that has a higher weightage apart from repayment history, and that is credit utilization, which determines how financially stable a person is. Here, an individual needs to deal with the situation where one must not max out their credit card limit, which heavily impacts the credit score.
For example, suppose a person has a credit limit of 1 lakh rupees or in any other currency. In that case, itโs recommended that a person must use one-third of that amount, which shows that an individual is modest in their financial situation.
Maxing out a credit card implies that a person doesnโt have any additional mode of payment and thus uses the entire limit for expenditure. Now, to maintain the credit utilization limit and credit score, one can balance it out by using multiple accounts, which is a proven way to use credit cards for purchases without disturbing the credit utilization limit.
A person who has done an HDFC DSA registration or from any other contemporary bank can state how essential it is to maintain the credit score limit and can help a person get a better loan option by helping them fix their credit score.
Other Modest Parameters of Credit Cards
The length of credit history matters a lot as it shows that the individual is a seasoned credit card user and hence opens up to them a wide variety of options, which helps a person to make better borrowings.
By following these parameters, one can maintain a credit score and remain in a financially stable state.
