Your credit behaviour, like paying on time, keeping low balances, and avoiding defaults, directly impacts your borrowing power. Good habits boost your credit score, helping you qualify for larger loans at better rates.
How Your Credit Behaviour Affects Your Borrowing Power?
Your credit behaviour, how you use and repay borrowed money, has a direct and lasting impact on your ability to access credit in the future. Whether you’re applying for a personal loan, a home loan, or a credit card, lenders first assess your credit profile to determine whether you are a responsible borrower. That’s where your credit score comes into play.
What Is a Credit Score and Why It Matters?
A credit score is a three-digit number that summarises your creditworthiness. It generally ranges from 300 to 900, with a higher score indicating strong credit behaviour. Lenders use this score to evaluate your application for loans, credit cards, or even rent agreements. The closer you are to 900, the better your chances of securing credit with favourable terms like lower interest rates and higher loan amounts.
In essence, your credit score is a snapshot of how well you handle borrowed money. It reflects your past and present credit behaviour and often predicts your future financial responsibility.
Key Credit Behaviours That Influence Your Borrowing Power
Let’s explore how your daily financial habits and decisions directly influence your ability to borrow.
1. Timely Repayment History
Your repayment history holds the most weight in your credit score calculation. Regular, on-time payments build a strong foundation for a good credit score, while missed or delayed payments can drastically pull it down.
When lenders see that you’ve repaid past loans or credit card bills consistently and within the due date, they’re more confident in approving your new credit requests. If you tend to miss payments, it raises red flags, limiting your borrowing options.
Tip: Set up reminders or auto-debit mandates to ensure you never miss a due date.
2. Credit Utilisation Ratio
Your credit utilisation ratio is the percentage of your credit limit you’re currently using. If you have a credit limit of ₹1,00,000 and spend ₹80,000 monthly, your utilisation is 80% and that’s too high.
A high utilisation ratio may indicate dependency on credit, which can harm your credit score. Ideally, you should aim to use less than 30% of your total credit limit to maintain a healthy score and signal responsible usage.
Tip: Spread your expenses across multiple cards or request a credit limit increase to reduce your utilization percentage.
3. Multiple Loan Applications in a Short Time
Each time you apply for a loan or credit card, lenders perform a hard inquiry on your credit report. Too many inquiries within a short period can lower your score, as it suggests you’re in urgent need of credit.
Such behaviour may lead lenders to assume you’re financially unstable, even if that’s not the case, and this can negatively impact your credit rating.
Tip: Apply for credit only when necessary and space out applications to avoid harming your score
4. Length of Credit History
The age of your credit accounts also matters. A long and positive credit history shows that you’ve handled credit responsibly over time. If you close old accounts too soon or frequently open new ones, your credit score may dip.
Tip: Keep your oldest credit cards open (if they’re in good standing) to lengthen your credit history.
5. Credit Mix
Having a balanced mix of credit types, such as secured loans (home, car) and unsecured loans (personal, credit cards), reflects well on your credit behaviour. It shows that you’re capable of managing different kinds of credit responsibly.
A diverse credit portfolio can strengthen your score and borrowing profile.
The Role of Credit Score in Loan Approvals
Your borrowing power, how much you can borrow, the interest rate you qualify for, and the tenure of the loan, is directly linked to your credit score.
Here’s how:
- High credit score (750 and above): Easier loan approval, better negotiation power, higher loan amounts, and lower interest rates.
- Moderate score (650–749): You may still get a loan, but with stricter terms and possibly a higher interest rate.
- Low credit score (below 650): Higher risk in the lender’s eyes, often resulting in loan rejection or reduced limits.
Understanding this relationship makes it clear that a good credit score isn’t just a number it’s a financial advantage.
How to Improve Credit Score and Boost Borrowing Power
Improving your credit score doesn’t happen overnight, but with consistent efforts, it’s absolutely possible. Here’s how:
1. Monitor Credit Score Regularly
The first step is awareness. Make it a habit to monitor credit score regularly. This helps you identify any irregularities or errors early and take prompt action.
You can check your credit score online through authorised credit bureaus by entering a few personal details. Most platforms also provide a detailed report that helps you assess where you stand.
2. Pay All Dues on Time
EMIs, credit card bills, utility bills — all of them count. Build a reputation for timely repayment. This not only boosts your credit score but also establishes you as a trustworthy borrower.
3. Keep Your Credit Utilization Low
Limit your spending on credit cards and keep your balances low. Remember — using more than 30% of your credit limit could negatively affect your score, even if you pay in full later.
4. Avoid Unnecessary Credit
Don’t borrow just because you can. Every new loan adds to your liability and impacts your score. Only borrow what you need and what you can repay comfortably.
Conclusion
Your borrowing power isn’t decided on the day you apply for a loan; it’s shaped every day by your credit behaviour. From repaying loans on time and keeping balances low to making informed borrowing decisions, everything contributes to your credit score.
So, if you’re looking to improve your credit score, start by tracking your financial habits closely. Monitor your credit score, stay disciplined with your credit usage, and avoid situations that could lower your rating.
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