Credit score is one of the most important factors that affects your ability to secure credit. A good credit score, usually 750 or above, indicates a higher creditworthiness and a good repayment track record. On the other hand, a poor credit score which usually results from delays in paying your credit card bill and EMIs, making multiple credit enquiries within a short period of time, having errors in credit report, etc. indicates irresponsible credit behaviour and may increase the perceived risk for the lender.
Read the complete article to know about the disadvantages of poor credit score along with key ways to improve your credit score.
What are the Disadvantages of Having a Bad Credit Score
Given below are a few key disadvantages of having a poor credit score:
- Difficult to get a new loan or loan rejection: An average or poor credit score, typically below 700, is a result of a weak track record with credit, indicates a higher risk for the lender in offering a new loan/credit card and thus, may often result in loan rejection. In case a lender agrees to provide a loan despite a poor credit score, it is usually offered at a higher interest rate and/or other unfavourable terms such as shorter repayment tenure with higher EMIs, lower loan amount than what you need, etc.
- Limited credit card options: As a poor credit score increases the risk for the lender, it may often also result in the rejection of credit card application(s). In case a credit card is offered to a person with poor credit score, it usually comes with a lower credit limit.
- Higher interest rates: Since the risk for the lender is higher in lending money to an applicant with a poor credit score, they may also be charged a higher rate of interest on their new loan.
- Fewer options for premium credit cards: Most credit card providers do not approve applications of applicants having a low credit score. When applying with the bank, they are offered cards with fewer rewards and offers. Such applicants also have limited credit card offers and those being offered have a low credit limit.
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Ways to Improve your Credit Score
Given below are a few key ways that can help you improve your credit score:
- Pay your EMIs and credit card dues on time. Fix your late payments, in case any, going forward.
- Regularly review and analyze your credit report. Take steps to make the relevant changes and improvements
- Pay your debts (in case any) rather than transferring it to other accounts
- Getting a secured credit card is a good way that can help you build your credit history. A secured credit card is essentially a credit card backed by a fixed deposit which can help you to earn on your savings and build your credit score. When you start using this credit card, you can earn rewards and other benefits, build your credit score by responsibly using this card and the money in your FD also provides you with strong and secured returns
- Increase the credit limit on your existing credit card
- Have a good mix of secured and unsecured credit
- Reduce over dependence on credit and maintain a low credit utilization ratio
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