Credit score is a number that represents a person’s credit worthiness based on his/her credit analysis. The score is based on reports published by different credit bureaus. Credit card companies and banks use these credit scores for evaluation of potential risks in lending money to a particular individual. The credit scores are used by the lenders to determine who is eligible for the loan offered by them. The lenders also figure out which customer can bring in a lot of revenue using the credit scores. Credit scores helps to understand all about the credit history and also of issues which can impact the score.
A credit score is offered by three different credit bureaus of the Reserve Bank of India. They are Experian, Equifax and CIBIL. CIBIL is quite popular as it has been in the business for a long time. Non-Banking Financial Companies and banks use the credit score provided by CIBIL, Experian and Equifax to determine the potential risk of lending to a customer. The lenders make use of these scores fix the credit limit for all eligible customers.
The CIBIL score is a three digit number that ranges from 300 to 900. As an individual goes up from 300 to 900, his/her credit score gets better. In case, an individual has no credit history at all, the score will be -1. If the credit history is only for a period of 6 months, the CIBIL score will be 0. In order to build a credit history, it takes a period of 18 to 36 months.
Why Read Credit Score Advice?
The CIBIL report has a direct impact on an individual’s ability to get a credit card, purchase a car or house on loan, rent an apartment, etc. Learning to read the credit report and correcting the mistakes, if any, will definitely help a person in the long run.
When an individual applies for a credit card or a loan, the CIBIL score is checked by the bank to determine the applicant’s creditworthiness. It is always better for an individual to check his/her own credit score before approaching the lender. This way, the risk of being rejected by the bank can be completely avoided. In order to maintain a good CIBIL score and stop it from falling, it is of utmost importance the scores are checked on a regular basis.
Things to Do for Improving Credit Score:
If a person has low credit score, banks and Non-Banking Financial Companies will not provide credit cards or loans. So, credit score must be improved in order to get a loan sanctioned. One can follow the simple steps to improve credit score:
- Do not Apply for Credit – If an individual has a low CIBIL score and still applies for a loan, chances are that it will get rejected by the lender. Even if the lender approves the loan, it will be at a very high rate of interest. One must understand that upon rejection, the credit score goes further down. Thus, it is advisable to improve the credit score and then apply for a loan.
- Timely Payments – Late payments for credit cards and loans can have a very bad impact on the credit score. The drop in credit score will lead to the rejection of the loan application. The best practice is to pay all dues on time and avoid late payments completely.
- Staying in Limits – Any individual using credit must remember to keep the utilisation level low. It is advisable to use a maximum of 50% of the available credit limit. Keeping the credit limit low helps in easy repayment of loans. This helps the individual to manage his/her finances better. If the credit utilisation level is high, it can be difficult for the customer to repay the outstanding amount.