Why Credit Score Is Important For Millennials To Be Future Ready

As soon as we kick start our career, our quest to turn each of our nurtured dreams into reality, begins. And over the past decades, no matter how much our mindsets and priorities differ from those of other generations, one thing that remains common is the importance of asset creation. But have you ever wondered, there¡¯s an equally important asset besides the common ones like property, gold , cash etc.? That's your credit score. Eager to know how this term has become no less than a crucial financial asset today? Read on as Worth explains the importance of credit score for millennials to be future ready for taking loan or credit card.

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What is credit score?

Simply put, credit score is a three-digit numerical representation of your credit history, and generally ranges between 300-900. It depicts your creditworthiness on the basis of your past repayment behaviour, including how disciplined you have been in repaying your loan EMIs and credit card bills by indicating how well you have been handling your debt repayments in the past

Why is credit score important?

Credit score is used as one of the first filters to be factored in by lenders while evaluating your loan and credit card applications. It helps the lender to assess your creditworthiness through past repayment behaviour, which also indicates the degree of likelihood of you defaulting on the loan/credit card repayments in future. A good credit score will depict you as more trustworthy, whereas a low or no credit score would make the lender take a cautious approach when deciding whether to accept or reject your application.

Besides all this, credit score¡¯s role has gradually widened towards also being amongst the parameters upon which lenders are setting interest rates to be charged from varying customers. Those having a higher credit score are likely to get a cheaper loan and better service terms than someone having a poor or now credit score.

What happens when your credit score is less?

If you were asked to lend money to someone who has a history of not handling loans or credit card payments properly? You would think twice before even considering lending them money, right? Similar is the case with financial institutions. Whether you have a poor credit score due to poor financial habits towards repayments or simply do not have a credit score due to lack of credit history, lenders are likely to either reject your application, or charge higher interest rates vis-a-vis those who have high credit score. This is primarily due to the higher degree of credit risk (risk of default) that people with low or no credit score pose for the lender.

How can you build a high credit score?

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Different credit bureaus assign different weightage to various parameters that impact your credit score calculation. Chief parameters amongst these, are your credit utilisation ratio, credit mix, loan and credit card repayment history, credit enquiries, credit mix and co-signed/guaranteed loans. But the first step towards creating a credit score, is building your credit history. So, let's dig deeper to know how to build your credit history.

As loans and credit cards are the two forms of credit you can take for building your credit history, and the former has compulsory interest cost attached to it, it becomes prudent to start building your credit history by using credit cards. While credit cards too involve interest in the form of finance charges, those are only levied if you do not repay the bills timely and in full. So, discipline usage and repayment of credit cards can be your first step to gradually build a good credit score. This can be your key to unlocking better deals on loans and credit cards in future, besides boosting approval chances as well.

Now, it might be difficult for some millennials to get approval for regular credit cards, due to lack of credit history, insufficient income, etc. But don't worry, that's not the end of the road. Such millennials can go for secured credit cards. These are similar to regular credit cards, barring the fact that they are issued against your fixed deposit. Nevertheless, these can be helpful in giving you a head-start in building a credit history, which gradually leads to the creation of your credit score as well.

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