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.
FAQs on Credit Score Advice
- Who will give me my credit score in India?
As of now, India has four credit bureaus. These are Experian, CIBIL TransUnion, CRIF High Mark and Equifax. These credit bureaus have their very own scoring models. They offer credit scores to every Indian resident who has loans or credit cards. Your lender will decide to give you a loan and the interest on the same based on the credit score you are given by these credit bureaus.
- Will all the credit bureaus give me the same credit score?
No, every credit bureau will have its own scoring model. This is the reason that your credit score will be different in the reports given by these bureaus. The closer your credit score is to 900, the higher your score are your chances of getting a loan approved.
- Will my credit score reduce if I check my credit score on a regular basis?
You should keep in mind that when you check your own credit score, it is called a ‘soft enquiry’. So, your credit score will be the same and not be affected. If NBFCs and banks check your report, then it is called a ‘hard enquiry’ and your credit score will reduce.
- How much will it cost for me to get my credit report?
You should note that the charges for getting a copy of your credit report will differ from one credit bureau to another. You may have to pay Rs.500 for getting a copy of your credit report if you go to the credit bureau directly.