One might need credit at any point in life, let’s say for a medical emergency, personal expenses, education, etc. Credit could be of any type such as credit card, loan, EMIs, etc. One can apply for a loan or credit cards and avail credit to fulfil their goals or requirements. However, lenders do not approve credit applications of all applicants. Banks and financial institutions want assurance that the risk of credit offered is low before they give your credit. This is done by credit bureaus that do so on the basis of the credit score of applicants.
Lenders may check your credit score from any of the four credit bureaus – CIBIL, Experian, Equifax and CRIF Highmark. You can get your free credit score from these portals once every year.
You should know your financial situation before you apply for credit in any form. You must be capable to pay off the debts on time. You might incur consequences if you do not choose the right type of credit. If not researched properly before applying, you might end up overpaying and not earn any rewards or benefits. Each type of credit has its own set of perks and benefits. An individual must consider all the aspects before applying for the same. Hence, here are some key points that you must check before applying for any type of credit.
Maintain Good Credit Score
For individuals applying for any type of credit, they must know that they need to maintain a good credit score in order to avail credit facilities. It improves your chances of getting the credit approved. One of the major benefits is that a lender may offer you credit at low interests rates. It is advisable to maintain credit score of 750 and above to avail personalised offers and making chances of credit approval higher.
Compare Interest Rate Offered by Various Lenders
It is imperative to have proper knowledge of the interest that you would be paying on your credit that you take. You will be charged as per the interest rate plus late payment fee if you fail to pay the amount within the stipulated period. Interest rates may vary depending on the type of credit you are applying for. It is important to have proper knowledge and understating of the interest rate that you would be charged while paying off your credit. You can go for a credit product that offers lower interest rates.
Penalties on Late Payment
Before you apply for credit, you must know how much the bank will charge if you end up missing the due date and have to make the late payment. Some banks offer credit at lower interest rate but charge a high penalty on missing the due date or late payment. Thus, it is imperative that you do proper analysis of these charges and offered interest rates to come up with the best possible credit offer.
Pre-approved offers or Existing Relationship with the Bank
Customers having existing financial relationship with the bank have better prospects of getting loans or credit cards under pre-approved offers. These offers allow applicants to have relaxed criteria for loan approval, paperless process, relatively lower interest rates and quick disbursal. If you have an existing credit product with the bank and you repay your debts on a timely basis, banks will consider you to be creditworthy. They would prefer to offer you loans and credit cards as the risk of offering you credit is lower than offering it to an applicant who is new for the bank.
Look for a Credit with Low or No Processing Fee
Many lenders provide credit that doesn’t involve any processing charges. It is always better to apply for such credit products where you have to pay low or no processing charges for that credit. It will save you money since processing charges can be a substantial amount and vary from bank to bank. Some banks may charge low processing charges and some may charge high processing charges. However, don’t choose a credit product just because it has low or no processing fee. Check the offered interest rate as well.
Manage your Credit Responsibly
Once you have been provided any type of credit, it is your responsibility to manage those funds responsibly so that you can be worthy of credit in the future as well. You must ensure that you make payments timely and you are not spending more than you can afford to give back. If you do not manage your credit responsibly, it can hamper your credit score and make it difficult to avail credit in future. A bad credit score will get you high-interest rate on your credit. Hence, it is advisable to remain responsible while using and applying for credit.
Also Read: How to Keep up your Credit Score
Proper research is the key while looking for a loan or credit card. Various portals allow you to check if you are eligible for a specific credit product. You should choose a product that matches your requirements the best and where the cost of credit remains the least by the end of the tenure.