01-Mar-2019 written by : FSI-Team
People strive for financial success and do whatever it takes to be able to achieve their objectives on this front which is key for survival. However, credit score, which plays an important role in realizing the financial success does not get due consideration. While on one hand people will go to the extent of taking smallest of measures, like keeping off the electricity of unutilized rooms, they tend to neglect this big factor that can positively impact the aims set out on financial front.
Let us first ascertain the parameters for financial success. How would one gauge that he has attained financial success in life? While the objectives could vary from one person to the other, the parameters applicable to one and all can remain the same. The following two can be the used as the benchmark to evaluate success to begin with.
It may seem to be a simple objective but it really is not. One’s ability to raise funds is not restricted to the availability of loans. It is beyond this. Let us understand it more clearly. Obtaining loans is one part but being in the capacity to seek loans for the amount that is needed is something different. One can put forth the argument that one would be able to seek loans only upto the capacity of repayment. While this logic is valid, but, not necessarily be applicable. A regular higher exposure to credit will limit one’s chance to raise higher funds.
For example, Mr A applied for a HDFC home loan but owing to his high exposure on existing cards and personal loan got the bank to reject the request. High exposure to credit impacts the score adversely. Hence it becomes important to keep the exposure under check.
To manage a good score, the overall amounts owed to the all banks put together should not be very high. Had Mr A would have been able to successfully obtain the loan had he restricted the loan outstanding and have had good score range. Now owning a house is definitely a parameter to personal financial success.
Reaching a point where one may not be required to work for making the ends meet and day to day expenses is another strong indicator of financial success. While generally speaking people think of attaining this situation only in case of retirement, but this is not restricted to the point where one ceases to work. Today people strive for achieving this huge milestone at an early age and then work to further improve the financial status and meet the objective of self-actualization.
To be able to achieve this, one would require to have systematic savings. A good credit score will help in boosting the savings. It may sound bizarre but this is the fact.
A good credit score will help in getting loans and other credit facilities at a rate which is lower than the rate that may get charged if the credit score is not so good.
A reduced rate of 100 bps on a home loan of 50 lakh rupees for a term of 20 years will lead to a saving of almost 10 lakh rupees in interest. It is not easy to save that kind of money. While here, just by the virtue of maintaining good score one will get this as a gift from the lending institutions.
A person’s loan will not be limited to one home loan only. Few car loans and personal loans are products that most of the individuals will take during work life. The total saving on these loans can add couple of more lakhs to the savings. And this saving does not account for the compounding impact on the interest earned if this money was to be saved.
Thus it is important for one and all to keep a check on their CIBIL report and maintain a good credit score. This will definitely facilitate in their financial success.