Why does a credit score matter even when you are not making any big purchases?

If there is one fact that’s universally accepted, it’s: Emergency doesn’t wait for your convenience. It can strike at any time. You have to be prepared for every foreseeable emergency, especially for ones that require immediate cash. You can take all the time you need to gather funds while planning a vacation, but a medical emergency comes with a time constraint.

Since it’s not possible to keep a huge load of cash with us every time, we usually try to avail loans to quench our cash requirements. It’s a good thing that digitization has revolutionized the loan processing in a way that one can get loans in just a few hours, if not seconds. This has made accumulating funds in case of emergencies much easier. Although, as easy as it has become to avail loans, there are some prerequisites that banks/lenders look for when they are asked for loans.

One of the primary elements they look for is one’s Credit Score. Even during a cash crunch, a good credit score gives you the best loans for your needs and the best repayment terms for them. Conversely, a low credit score can even lead to loan rejection, causing you to panic even further during emergencies. Hence, it’s advisable to always maintain a good credit score of above 750 so that you would never face a loan rejection.

The importance of credit score for loans and credit cards can’t be more overstated, but recently the tool has been utilized for other purposes as well. Nowadays, some of the organizations have started gauging the candidates’ responsible behaviour through credit score. If an individual has a good credit score, it would mean that they have shown responsible behaviour towards credit and will do the same for the organization as well. Conversely, a bad credit score will deem that person as irresponsible person.

Hence, in essence, having a good credit score can improve your chances of securing a job.

When we think about the future, we often think about our income source after we retire or in case something unfortunate happens to us. Keeping that in mind, we tend to avail insurance; be it health, house, or travel insurance. But to get the benefits of an insurance policy during its maturity, we are required to invest some premium as well.

A good credit score will help you get a lower premium on insurance. While selecting an insurance, we often look for a lower premium, as the lower the premium, the better we can meet our other expenses. Hence, possessing a good credit score will give us some sort of negotiating power to ask for a lower premium.

Now that the importance of always maintaining a good credit score is understood, let’s take a look at how you can maintain a good credit score.

You must always pay your loan EMI’s and credit card bills on time. This not only helps you save money on penalty, it also gives lenders a positive impression of your responsible behaviour.

If you so much have missed a single payment, you should try to clear the issue and clean close any negative accounts, both settled and written off, you have on your credit report.

If you consistently keep on reaching/exceeding your credit card limit, you are deemed as a credit hungry person. It’s always advisable to maintain a credit card utilization ratio (ratio of credit card spendings to credit card limit) of below 30%. To achieve this, you could either cut down you credit card expenses or ask your credit card lender to increase your credit card’s limit.