Your credit score is one of the most important factors that lenders consider when deciding whether or not to approve your applications for loans and credit cards. Your credit score is influenced by a number of different elements; therefore, disregarding your credit score can be detrimental to your financial health is not just one but numerous ways.
Here we will describe the six crucial consequences of ignoring credit monitoring, especially in an ongoing pandemic scenario of uncertainty:
Costly interest rate loans: When determining the interest rates that will be applied to loan applicants, more and more financial institutions are beginning to take applicants’ credit scores into consideration. Lenders have a tendency to reward applicants with higher credit scores by providing them with loans at cheaper interest rates. This is because applicants with higher credit scores have a lesser risk of defaulting on the repayment of their loan EMIs. Applicants with lower credit scores, on the other hand, are more likely to face rejection from lenders or be subjected to higher interest rates. This is because lenders believe that applicants with lower credit scores reflected in their free cibil report are more likely to engage in some type of loan repayment default. Consequently, having a low credit score can result in being offered loans at higher interest rates, which in turn implies an increase in the overall interest cost incurred by the borrower.
Reduced eligibility for credit cards: Credit cards are not only a method of payment that can be used to finance your purchases or payments, but they are also an excellent way to save money through a host of benefits that they offer in the form of reward points, cashback, discounts, free gift cards or vouchers, and other similar perks. In addition to serving as a mode of payment, credit cards can be used to finance your purchases or payments. If you utilise your credit card in an organised way so that you may make the most of its financial perks, those benefits can easily outweigh any yearly fees that are linked with the card, which means that you will make big savings if you do so.
So, considering the fact that credit card issuers place a significant emphasis on applicants’ free cibil reports when deciding whether or not to grant credit cards during the credit monitoring process, applicants with higher credit scores stand a better chance of having their applications accepted. This, in turn, expands their opportunities to cut costs and make financial gains.
Weaker eligibility for loan transfers: The interest rates that are charged by different banks and financial organisations for personal loans, loans secured by property, and house mortgages can be quite different from one another. Lenders who charge lower interest rates typically have the tendency to tempt existing borrowers of other lenders by offering them the opportunity to switch lenders by selecting the balance transfer option as their method of switching. Under the terms of the balance transfer option, the lender agrees to provide the applicant with a new loan at a reduced interest rate. This helps the borrower to spend less money on interest during the course of the loan. In addition, creditors might be willing to lessen the applicants’ monthly EMI load by providing a longer repayment term.
Always keep in mind that a longer tenure will result in a bigger interest payout when selecting the tenure. Therefore, you should only proceed with the balance transfer once you have confirmed that you would experience a sizable reduction in the total interest expense. In exchange for the applicant allowing the lender to take over his or her outstanding debt via a balance transfer, the lender will pay off the applicant’s present lender for the amount of the applicant’s outstanding loan.
Keep in mind, however, that the lender will consider the applicant’s credit score mentioned in the free cibil report when deciding whether or not to approve the loan balance transfer application, just as they would with any other application for a new loan. When determining the interest rate for a loan, certain lenders may take into consideration the applicant’s credit score as well. Therefore, having a credit score that is considered to be “poor” during credit monitoring can result in an increase in the overall interest rate of the loan when the balance is transferred, and vice versa.
Costlier interest rates and additional costs for loans: In a manner similar to the situation with interest rates, numerous lending institutions have started rewarding customers with higher credit scores by either lowering or even waiving their processing fees and other charges after going through credit monitoring. Because of the potential for these fees to add up to a sizeable sum of money, especially in the case of large-scale loans, having a high credit score is likely to be of assistance to you in reducing costs associated with this aspect of your financial situation as well.
Lack of pre-approved credit card and loan proposals
Lenders and online financial markets have a tendency to make pre-approved loans and credit card offers to customers based on the customer’s free cibil report. Not only are you able to acquire an accurate assessment of your eligibility for loans and credit cards with the help of these offers, but you may also find that they are helpful when bargaining with other lenders because they typically provide superior product features and need less processing time. On the other hand, individuals who have bad credit or no credit score at all would not have access to such pre-approved offers.
Negative impact on employment opportunities –Although the practice of checking applicants’ credit scores as part of the hiring process is not yet widespread in our country, it is becoming increasingly common among some Indian corporations, particularly in industries such as telecommunications, financial, and insurance sectors. Applicants for jobs who have a low credit score which was found during credit monitoring are more likely to default on their loan EMIs and credit line card payments, which is a red flag for employers. As a result, their chances of finding a job tend to decrease as well, as employers may view irresponsible repayment behaviour as an indicator of a higher likelihood of engaging in fraudulent or unethical conduct in the future.