How Higher Creditworthiness Can Help Speed Up your Financial Independence

People often associate financial independence with having sufficient savings, investments and readily available funds to support their desired lifestyle. While savings and investments are crucial, leveraging credit through loans and credit cards can serve as a strategic tool to enhance your financial freedom. 

Read the complete article to know how higher creditworthiness can give you greater and easier access to credit and how this access may help accelerate your financial freedom.

Understanding Credit and Creditworthiness

Credit refers to the ability to borrow money (loans) or access goods and services with the agreement to pay later (using credit cards). Lenders and merchants, collectively known as creditors, extend credit based on their confidence in your ability to repay the borrowed amount along with any applicable charges. This confidence in your repayment ability is termed as creditworthiness, which is primarily reflected in your credit score —a three-digit number indicating your creditworthiness and financial status.

Benefits of Utilising Credit

Utilising credit can be a more efficient means to manage purchases, provided you have the funds to repay in full. It offers several advantages: 

• Greater Convenience: Credit cards facilitate carrying out transactions on the go, both online and offline, thereby eliminating the need to carry large amounts of cash. 
• Rewards and Offers: Many credit cards come with rewards programs, including cashback, redeemable points, insurance coverage, airline miles, hotel discounts, etc., that add value to your expenditure. 
• Higher Security: Credit comes with multiple layers of authentication, which minimises the risk of unauthorised usage. Moreover, in case of credit card loss or theft, they may be quickly cancelled, unlike cash, which is often unrecoverable. 

Strategic Use of Credit

Using credit cards and loans over liquid cash can be particularly beneficial in certain situations, such as:

• Recurring Expenses: Using credit cards for fixed and regularly recurring payments like rent, fuel, school fees, etc., can free up liquidity for other needs, as well as helping you accumulate reward points to help optimise your spending. 
• Emergencies: In unforeseen circumstances, such as medical emergencies, having access to credit can provide immediate financial support.
• International Travel: Since credit cards are widely accepted globally, they can be a convenient option to meet international expenses. However, it is important to be aware of the potential currency conversion rates and fees while doing so. Travel loans can also help in meeting immediate travel expenses now and paying off later in EMIs.

Disciplined and responsible use of credit not only helps in managing finances but also contributes to building a good CIBIL score, which in turn enables you to secure favourable loan terms to meet significant life goals like purchasing a home, starting a business, etc. 

Enhancing Your Credit Profile

Maintaining a healthy credit score is vital for financial independence since it gives you easier and greater access to credit. Regularly monitoring your credit report can help you stay informed about your credit status and detect any discrepancies or unauthorised activities on time. Tools like Credit Improvement Plans provide alerts on changes to your credit profile, such as new accounts, balance increases, late payments, etc., which can help you take timely action. 

Achieving financial independence involves more than just accumulating wealth; it also requires smart financial management. Leveraging credit responsibly can help enhance your spending power, provide security and offer additional benefits through rewards programs. Moreover, by staying informed and proactive about your credit health, you can pave the way toward a more secure and independent financial future.