The vast majority of consumers do not care about their credit history and credit scores – unless they try to take a loan or apply for a credit card. They are unaware that using credit irresponsibly can take a massive toll on their current and future finances.

Yes, you read that right. The impact of your credit score goes far beyond your current finances. Continue reading to find out how your credit score impacts your future savings and investments.

A credit score is a three-digit number ranging from 300 to 900. Lenders use this score to determine your creditworthiness. In simple terms, think of your credit score as your high school marks. The higher the marks, the better are your college admissions. Similarly, the higher your credit score, the better are your overall finances. Not paying your credit card bills on time or delaying loan EMIs all significantly impact your credit score, which in turn, hamper the financial opportunities available at your disposal.

Now, you are probably wondering, “what’s my credit score? And how do I check it?” You can check your latest credit score for free at CreditMantri. Powered by Equifax, CreditMantri gives your score and detailed analysis within a few minutes. 

Now that you’re aware of your score let’s take a look at how it impacts your financial life in several ways – big and small.

1. It affects Loan Eligibility and Interest Rates

Irrespective of the type of loan you take – a personal loan, a home loan, a business loan, or an education loan – the first criteria that all lenders check is your credit score. Having a good credit score shows that you’re good at making outstanding payments on time.

A good credit score implies that you’re credit responsible and you settle your financial obligations promptly. This gives confidence to lenders that you will repay your loans on time without delays and defaults.

Besides improving your loan eligibility, good credit scores also attract lower interest rates on your loan. Let’s explain the benefits of lower interest rates with an illustration. Let’s say you take a home loan for Rs. 30 lakhs for 20 years.

When you have a good credit score of 750 or above, the lender will likely offer you lower interest rates. Let’s say your good credit score snags you a great deal on your home loan at an interest rate of 7{751bd1bd09fd5854f33c61bc58cda330ab84ed105af0eb152b3b5cb6f5ca131a} per annum.

Loan Tenure	Principal	Total Interest	Total Amount Payable	Monthly EMI
20 years	Rs. 30,00,000	Rs. 25,82,153	Rs. 55,82,153	Rs. 23,259

Now, let’s consider the scenario where your credit score is average around 650. The lender charges you a higher interest rate of 8.5{751bd1bd09fd5854f33c61bc58cda330ab84ed105af0eb152b3b5cb6f5ca131a} per annum.

Loan Tenure	Principal	Total Interest	Total Amount Payable	Monthly EMI
20 years	Rs. 30,00,000	Rs. 32,48,327	Rs. 62,48,327	Rs. 26,035

As you can see from the above example, having credit scores in the highest category 750 and above, offers you home loans at a lower interest rate. This significantly reduces your monthly EMI burdens and overall loan payment. Although a credit score of 650 is considered respectable, it costs you Rs. 2,776 extra per month in the form of EMIs, which increases your overall loan burden by a whopping Rs. 6,66,174. Think of all that you could do with these extra savings!

Taking the right measures to improve your credit score not only increases the chances of loan eligibility but also helps you save tons of money throughout the loan tenure!

• It affects your Employability

Are you wondering what the relation between credit scores and employability is? Allow us to explain. Today, an increasing number of employers evaluate the credit scores of potential candidates before hiring them.

Employers check your credit score to see how much debt you have, whether you have been prompt in making loan/credit card repayments, etc. They use this information to determine whether you’re the right fit for the job.

To give an example, let’s say you apply for the job of a cashier, accounts manager, etc. If your credit score is low, then the employer knows that you’re under financial stress and cannot be trusted with money. They see you as a risk – someone who could potentially engage in embezzlement and other malpractices. Thus, having low credit scores impacts your employability, and therefore your career and income levels. 

• It impacts Business Opportunities

If you assumed that your personal credit scores have no impact on your business, sorry to break your bubble, you’re mistaken. When you apply for a business loan, the lender checks not only the credit score of your business but also your personal credit rating.

Lenders don’t distinguish between the financial behaviour of a business and its owner. They assume that when you have stellar personal financial ratings, you are likely to be prompt in your business loan repayments as well. The opposite is also true. Low personal credit scores cause lenders to assume you as risky, thereby making you lose out on business loan sanctions.

Not just lenders, other business transactions like acquiring a vendor or supplier is also dependent on your credit ratings to a certain extent. In a nutshell, having a high personal credit score shows that you’re trustworthy – helping you earn the trust of all your business partners.

• It affects Credit Card Eligibility and Credit Limits

Having a good credit score is advantageous when applying for credit cards. It not only improves your chances of eligibility but also offers you access to increased card limits, bonuses, and prizes. On the other hand, low credit scores could cause your credit card application to be rejected. Even if you’re approved, the card issuer may charge higher interest charges and lower credit limits.

• It affects Home Loan Transfers

Suppose you’re already paying monthly EMIs on a home loan at a higher interest rate. In that case, a home loan transfer is an excellent option to lower home loan interest rates. Having a good credit score helps you transfer your ongoing home loan to another borrower at a reduced interest rate, helping you save tens of thousands of rupees throughout the loan.

Low credit scores remove the possibility of transferring your home loan to another lender at a reduced interest rate. This has a severe repercussion on your financial future. Instead of saving money, you would have to continue paying tons of interest on your ongoing home loan.

• It affects your Saving Potentials

A low credit score means that your overall debts are a lot more. Thus, a massive chunk of your income goes to repaying loan EMIs and credit card bills, leaving you with very little money to save. Low credit scores cause you to get stuck in a never-ending cycle of debts, thereby impacting your savings.

• It impacts your Retirement Corpus

When you have a low credit score, a significant portion of your income goes to loans and outstanding payments. Thereby, it becomes challenging to save any money for a future nest egg. 

On the other hand, a high credit score reduces your loan burdens, insurance premiums, and other debts significantly, leaving you with extra money to quickly build your retirement corpus.

A Good Credit Score Secures your Financial Future

In the simplest of terms, having good credit scores puts more money in your pocket.

It reduces your loan interest rates, improves your credit card limits, all of which give you more money to save and invest. This, in turn, secures your financial future, helping you build a nest egg comfortably and quickly.

At the end of the day, a good credit score impacts your current finances and your future savings and retirement corpus. So, start by checking your latest credit score and work on ways to boost it. Use debt wisely, repay your bills on time, stay within your credit card limits – and watch your credit scores improve.