Your Credit Health Matters: Why Should You Periodically Check Your Credit Score?

Your Credit Health Matters: Why Should You Periodically Check Your Credit Score?

It was a warm Saturday evening, and the aroma of Khaled’s famous biryani filled the air. The dining table was set, and the family eagerly gathered for a delightful weekend dinner. Khaled, a seasoned banker, saw an opportune moment to discuss an important topic with his son, Asher.

“Hey, Asher, pass me the raita. I have been thinking about something we should talk about,” Khaled said, his eyes glinting with a mix of seriousness and anticipation.

“Sure, Dad. What’s on your mind?” Asher replied, handing over the bowl of raita.

With the family settled comfortably, Khaled began the discourse on a topic close to his heart – credit health.

The importance of credit score –

“Son, have you ever wondered why your credit score is like a financial report card?” Khaled began. “Just like good grades open doors to opportunities, a good credit score unlocks financial possibilities.”

Asher looked intrigued, taking a bite of the delectable biryani. Khaled continued, “Your credit score, influenced by agencies like Experian and Equifax, is a numeric representation of your creditworthiness. It matters because it impacts your ability to secure loans, credit cards, or even rent an apartment. Note that Experian credit score and Equifax credit score may vary slightly owing to their varying evaluation methods and time periods.”

Top benefits of a good credit score –

Easier loan approval

Having a good credit history makes lenders more confident in your ability to repay loans. This increased trust translates into a higher likelihood of loan approval. You won’t have to jump through as many hoops to secure the financing you need.

Lower rate of interest

When you hold a high score, lenders consider you to be a low-risk borrower. As an outcome, they provide you loans at reduced rate of interest. This infers you repay less over the loan duration, saving considerable amount of fund. 

Negotiating power

With a strong credit score, you enter negotiations on loans or other financial transactions from a position of strength. You can leverage your good credit to negotiate for more favourable terms, ensuring that the financial arrangements align with your needs and goals.

Better credit card offers

A high credit score opens the door to premium credit card offers. These cards often come with attractive perks such as cashback, travel rewards, and exclusive access to events. It’s like getting more value out of your everyday spending.

Employment opportunities

In some industries, employers consider credit scores during the hiring process. A good credit score may be seen as a reflection of your reliability and responsibility. It could be the factor that sets you apart from other candidates.

Financial security

A good credit score is a reflection of your financial habits. It shows that you manage your finances responsibly and are less likely to default on loans. This can contribute to an overall sense of financial security.

Higher credit limits

With a good credit score, credit card companies are more willing to extend higher credit limits. This provides you with greater financial flexibility and can be especially useful in emergencies or for managing larger expenses.

Business opportunities

Entrepreneurs with good credit have a smoother path to securing business loans. A positive credit history reflects your ability to manage financial obligations, making lenders more willing to invest in your business ventures.

As the conversation flowed, Khaled shifted gears to practical advice.

Tips for improving credit score

Keep credit card balances low

Aim to maintain a credit utilisation ratio below 30 per cent. This ratio represents the percentage of your available credit that you’re currently using. Keeping balances low demonstrates responsible credit management and indicates that you’re not overly reliant on credit to meet your financial needs.

Pay bills on time

Timely payments are the cornerstone of a positive credit history. When you consistently pay your bills by their due dates, it reflects your reliability and financial responsibility. Late payments, on the other hand, can have a detrimental impact on your credit score, signalling a potential risk to lenders.

Diversify credit types

Having a mix of credit types, such as credit cards, instalment loans, and retail accounts, can positively influence your credit score. This diversity shows that you can responsibly manage different types of credit, adding depth to your credit history.

Monitor credit reports

Regularly checking your credit reports allows you to spot errors or discrepancies promptly. Mistakes in your credit report can negatively impact your score. By staying vigilant, you can address issues promptly and ensure that your credit report accurately reflects your financial history.

Avoid closing old accounts

Long-standing accounts contribute positively to your credit history. Closing old accounts can shorten your credit history, potentially affecting your credit score. Even if you don’t actively use these accounts, having them open demonstrates a longer track record of responsible credit management.

Set up payment reminders

Technology can be a powerful ally in ensuring timely payments. Set up payment reminders on your phone or through online banking. Consistent and on-time payments contribute significantly to building and maintaining a positive credit history.

Limit new credit applications

Multiple credit inquiries within a short period can temporarily lower your credit score. When you apply for new credit, it may signal financial instability or a need for additional funds. Limiting the number of credit applications helps maintain the stability of your credit score.

Pay off debts strategically

Prioritise paying off high-interest debts first. This strategic approach not only saves you money on interest payments but also improves your credit utilisation ratio. It’s a step-by-step process that gradually enhances both your financial health and credit score.

Be patient

Building good credit is a gradual process. It requires patience and consistency in your financial habits. As you implement positive credit behaviours over time, you’ll see the impact on your credit score. Be patient and stay committed to the journey of financial responsibility. Remember, good credit is a long-term investment in your financial well-being.

Seek professional advice

Financial advisors can provide personalised strategies for improving your credit. Their expertise helps you navigate specific financial challenges and tailor your approach to your unique situation. Professional guidance can be especially beneficial when dealing with complex credit issues.

The importance of periodically checking credit scores –

“As we relish this meal, Asher, remember that periodically checking your credit score is like giving your financial health a check-up,” Khaled emphasised. “It allows you to catch any anomalies early and ensures your credit report is accurate.”

“Moreover, it keeps you informed about your financial standing to make informed decisions. It is like having a financial compass, guiding you towards a secure and prosperous future.”

As the dinner concluded, Khaled and Asher sat back, sipping on chai. The warmth of the evening mirrored the warmth of the father-son conversation. “Your credit health, my son, is a legacy you build for yourself,” Khaled said with a smile.

“Remember, a good credit score isn’t just a number; it’s a reflection of your financial responsibility and a key to unlocking a world of opportunities. So, let’s make it a habit to periodically check our credit scores, ensuring a secure and prosperous journey ahead.”

Ranny Watson