Certain banks offer you a lower rate of interest on loans if your CIBIL (Credit) score is good. The definition of ‘good’ is subjective but anything above 750 or 800 is a good credit score.
Why would a bank offer a lower rate of interest with borrowers with a good credit score? Habits don’t die easily. Hence, the bank is right in assuming that you will be responsible with loan payments in the future if you have been responsible with such payments in the past. And your credit score is a good reflection of your overall credit behavior. If the bank perceives you to be a low-risk borrower due to your credit score, it can reduce the interest rate for you.
So, it is clear to everyone that your credit score plays an important role not only in loan approval but also in deciding the cost of the loan. Hence, if you are planning to apply for a loan or a credit card in the future, it is important to keep an eye on your credit score. If the score is not good, take corrective action.
Let’s say, you are aware that your CIBIL score is not good. You have not been diligent with your card and loan payments. At the same time, you do not plan to take a loan in the future. Does your CIBIL score matter even then?
I think you must still care about your credit score. Here’s why.
A Credit Score Can Help in Finding a Job
I had to furnish my credit report to the markets regulator while applying for a license. This was 10 years back. While a credit report would unlikely have been a deciding factor, it would certainly have been a hygiene factor. A good credit score wouldn’t improve the chances, but a bad score would hamper the odds of success.
As I understand, many (not all) employers ask applicants to share credit reports. This could be for identity check, assessment of your financial background, ability to manage funds, or overall trustworthiness. If you have financial troubles, it could also affect your performance at work. I do not know how employers would review your credit report. Or what aspects would they look for? Or how would they assess your personality using your credit report? The point is that, if certain employers are asking for your credit report, they must be using it for some form of assessment. And as an applicant, you would want to score well in that assessment. A good credit score wouldn’t harm.
A Good Credit Score Can Get You a Discount on Insurance Premiums
I have read reports indicating insurance companies offer discounts on select products if you have a good credit score.
Health insurance premiums may seem far removed from credit score. Still, insurers are offering discounts of up to 15% based on your credit score. There could be many reasons for this.
- Health insurance is a commodity. A credit score linked discount makes for good advertising and can help stand out. OR
- The insurer may believe that, if you are responsible with money, you will be responsible with your health too. Not sure how true that is. Yes, with your finances in order, you may be able to access quality healthcare. It is also possible the insurers have statistical data to back this up. OR this could just be a hypothesis, and the insurers want to test this out. In case this does not turn out well, the insurer company can simply withdraw the product or remove the discount based on credit scores. OR
- Design a premium product, targeted at well-to-do customers. Such customers would anyways have a good CIBIL/Credit Score. Load the plan with fancy features (maternity, treatment abroad). Make it quite expensive. And then offer a carrot through a discount based on credit scores. I know my paranoia is overflowing.
Such arguments for credit score-based discounts can be extended to auto and life insurance too.
I can only speculate on the reason for the discount based on credit scores, but the fact is that a good credit score can get you a discount in your health insurance premium.
As we have seen, the benefits of a good credit score extend beyond just the loans. In this post, I considered only employment and health insurance premiums. There may be other areas where your credit score can play an important role. Therefore, there is a strong case to set your credit score right, even if you do not intend to apply for a loan or credit card in the future. To improve your credit score, you must first figure out where the shortcomings are and then set about rectifying those issues.