Learn why credit score is key to your financial success

24-Apr-2019 written by : FSI-Team

Key to your financial success

Most of the people when asked about how to chart out the way to financial success would mention spend less and save more. Can this be defined as the process to financial success? The answer is bot yes and no. Yes because one has to save to create wealth which is what is being advised and no because it is not just about spending lesser amount and saving larger portion of earning in the quest of financial success. Path towards being financially successful is far more complexed and needs both keeping focus various facets and consistent efforts.

While there are number of areas that one would need to work upon on an ongoing basis, but here we are going to focus on one of the facets that can fuel the process and help in saving large amounts. Putting it differently, this is the facet that can help in saving substantial amount without cutting down on expenses and without even experiencing a hike in income.

Surprised, yes you could be. The factor that is being talked about here is your credit profile which is denoted by the three digit credit score. How can this numerical expression of your credibility can help in saving lakhs of rupees is something that you are going to understand today.

Broadly speaking a good profile helps in two ways in your efforts to be financially prosperous.

Cost of funds

Possibly every urban dweller today is aware that a higher credit score will lead to lower interest being charged on the loans that he would be taking. Means that the cost of funds will be lower. Now understand this from an example. You take a loan of Rs. 1 Crore for a period of 20 years. If your interest rate gets reduced by 1% percent, you tend to save Rs. 15 lakh in interest on the loan.

While the amount of money being saved is quite substantial and amounts to Rs. 75 thousand of additional saving, you still may not be able to get the perspective. A consistent investment of 75 thousand rupees for 20 years will lead to make you richer by a whopping 70 Lakh plus (calculated at an annualized return of 12% if the interest saved is saved monthly).

What is your pick on the statement that being on the right side of credit bureau will facilitate financial success.

Timely availability

A good credit score will also lead to timely availability of debt. Non availability of loans can result in losing out the possibility to create wealth. Taking cue from the above example of home loans, you have spent substantial time in finding out the right property for yourself. With your efforts, you have been able to zero down on a house that suits your budget as well as the locality that you wish to live in. You pay an advance to the current owner assuming that the loan will come through. Unfortunately, the same does not happen. There are considerable delays since your credit score is not up to the mark. And the deal gets cancelled. You would be fortunate to be receiving the money paid as a token back from the owner. You also work on the profile and get the scores corrected, however, the not only the deal is lost but you may get another house at a higher price.

Think of a situation from a business perspective. If one is getting a chance to grow the business by investing money borrowed from a bank, he will definitely suffer a loss if the money is denied.

Action point

You must ensure that the credit score is maintained at good levels. In India, a score of 750 and above is deemed to be a good score. Managing it at this level is definitely going to be a big plus in your endeavor to financial success. And to do this you do not need to do something out of the way. All you would be required to do is obtain your free CIBIL score and keep a check on it. In case the score dips try to seek professional help if you are not able to understand the reasons to it.



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