Financial literacy lesson no-5
Your assets are your credit score, so acquire more of it. - Vinita. Pal
Today I have a story to tell, it’s a story about an aspiring man who was thrilled by the ongoing entrepreneurial vogue and wanted to try his luck and hands in entrepreneurship. He had business ideas and plans in place, what was missing was the funds to put the plan into execution. With great zest and zeal, he approached the bank for capital investment. While talking with the manager of the bank his face turns pale and the zest and zeal were replaced by deep regret. You might ask what regret? the answer is the regret of not having a good credit score. With a heavy heart, he was seated on the garden bench it is when a wise man appeared in front of him. He asked for the reason for his disappointment. Having poured his heart out he felt light but could not understand whom he should approach to set things right. The wise man, being an entrepreneur himself could sense his pain and suggested he be financially literate as it is the only solution to his problem of ignorance.
The young man did as the wise men said and set on the journey of financial education. The wise man handed him a book with a wise disclaimer for him to remember.
Disclaimer: This book can answer only 5 questions so be wise with what you want to ask.
As the man held the book to read, he heard the voice “ Ask and you shall receive” Being startled he put the book aside and took some time to comprehend what he just experienced. After a while, he went near the book just to check if the happening a while ago was a reality or an illusion, and to his astonishment, he again heard the book speak again. With great courage, he took the book in his hand and heard the same voice,“ Ask and you shall receive .”
At this point curiosity gripped him and he opened the first page to ask his first question.
What is a Credit Score?
The book answered: The way your school and graduation report card reflect your academic progress and status likewise, a credit score is a three-digit number that reflects your financial status and progress.
“Gee! This is cool.” Said the man and proceed to ask the second question.
2. How Credit Score is calculated?
The book answered: Five factors are responsible for the calculation of your credit score. They are:
i) how disciplined you are with your credit card, EMI, and loan payment.
ii) Your CUR (Credit Utilization Ratio) is a percentage of credit limit utilization every month. It should be under 30%
iii) Your healthy loan portfolio.
iv) Frequent credit inquiries that are made by lenders each time you apply for multiple loans and credit cards.
v.) Duration of credit card holding, simple term the older your credit card the healthy credit score it guarantees.
Being surprised by a whole lot of information the man couldn’t believe his ears. The man said, “As astounding as this may appear, let’s see what information can this book gives me for my next question.”
3. Why credit score matters for one’s financial health?
The book answered: Credit score serves as a report card of one’s financial life. This report card is been asked for by the financial institutions in case you approach them for financial help. Financial institutions before lending you the money go through your credit score report card to know your story. yes, a credit score (a three-digit) number has the potential to reveal the story of one’s financial life. After knowing your story, they are able to assess your credibility and make informed decisions at the time of lending the money. In this way, your credit score becomes instrumental in providing you with financial assistance from the financial institutions at the time of your need.
4. How is credit score related to assets?
The book answered: Let’s say you want a loan to start your dream entrepreneurial vogue and you approached the bank for the same. The bank assesses your credit score report and found it is not up to the required range as a result of which you are not qualified for the loan and your dream entrepreneurial vogue has to wait for a few long years till the time you work up to improve your credit score.
Now let’s assume that a big industrialist approached the bank for a loan to invest in their upcoming project and the bank approves their loan without much assessment as they did for yours, now you may ask why? The simple answer is, the big industrialist has a number of assets that give away positive cash flow and the bank takes into consideration the assets of the industrialist along with the credit score report. The number of assets with positive cash flow takes care of the five factors for a good credit score and it is a good sign for the bank to consider their loan proposal and issue them the loan because banks are rested assured that they are going to recover their loan with interest with the cash flow from the assets.
so, a credit score is just an instrument where in financial institution assesses my credibility to pay back the lending amount on the time. If I start acquiring assets with positive cash flow those assets will also act as an instrument to show them my credibility and reliability to pay back the amount on time, Then in a true sense, my assets are my credit score.” the man uttered in bliss of joy.
The man left with the last question so he thought and thought with great seriousness. He realizes the benefits and importance of being financially literate now therefore he doesn’t want to make any mistakes. After deep sincere thinking, he came up with an intelligent question
5. What is the best resource for financial education?
The book answered: Ultimate Rich Dad library.
Like this, that man acquired the first asset that will help him generate infinite positive cash flow which in turn will give impetus to his upcoming many more entrepreneurial ventures by unlocking the door of ultimate financial literacy resource.
Like this man you too can be benefitted out of this link, therefore, don’t miss to check it out.
See you next time with yet another interesting financial literacy lesson till then Keep learning.
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