Salary Hike: An increase in your compensation package undoubtedly benefits you. Does it, however, improve your creditworthiness and score? In other words, although larger salaries have potential, they only have an indirect impact on a person’s credit score.

Credit Score Fundamentals:

A credit score works much like a report card. It reflects a borrower’s creditworthiness, integrity, repayment history, and ability to repay loans. The score typically ranges from 300 to 900, with higher scores indicating better credit health. Credit bureaus no longer receive direct updates about salary hikes. As a result, pay increases do not directly influence credit scores. While banks may consider a higher salary when evaluating loan or credit card applications, your credit score still depends on your financial behavior, not your income level.

Animesh Hardia, Senior Vice President of Quantitative Research at 1 Finance, confirms this by stating, “A pay increase by itself does not directly raise your credit score.” He emphasizes that what truly matters is how you manage the additional income. If you use it to pay bills on time, reduce outstanding debt, and avoid overusing credit, you’ll build a stronger credit profile. Over time, consistent and responsible credit behavior, not the size of your paycheck, plays the most crucial role in maintaining a high credit score.

Credit Score Benefits For Higher Salary:
Credit bureaus must now update credit scores every 15 days in accordance with recent central bank rules. Since EMIs are paid on time and delays and defaults are avoided as a result of higher incomes, it is now a given that higher salaries assist borrowers in controlling their personal loan and credit card usage, which in turn raises a person’s credit score. However, the credit score is not directly impacted by a “salary bump.”

Also Read: Credit Score Myths and Facts Explained

Do lenders care about higher income?

Banks and other financial institutions use salary increases to calculate a borrower’s or loan applicant’s debt-to-income ratio. When you maintain a low and manageable debt-to-income ratio, they consider you less dependent on debt for daily expenses. In many cases, this financial stability can make you eligible for higher loan amounts or loans with lower interest rates compared to other applicants. Even if your credit score doesn’t change immediately, banks may still offer better loan terms. They assess several other factors during loan disbursement, including your past defaults, credit utilization ratio, and repayment history.

Also Read: Your Credit Score a Real Deal-Breaker? Marriage & Jobs

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