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A credit score is a measure of your creditworthiness. The first thing lenders check when you apply for a loan or a credit card is your credit score. It gives them an idea of whether you have the ability to repay the borrowed sum. Hence, it is important to maintain a high credit score. A credit score is calculated by the credit bureaus in the country after taking into consideration several factors like payment history, credit exposure, credit mix, credit inquiries, and the length of credit history. For those unaware, a credit score ranges from 300-900. Generally, lenders consider a credit score of 750 and above as ideal. Therefore, you should always take measures to have a credit score that is close to 900. Let’s take a look at the importance of having a healthy credit score.
While every credit bureau has their own model when it comes to calculating credit score, there are certain constant factors which every credit bureau takes into consideration. The factors taken into account are:
Since 2017, the Reserve Bank of India (RBI) made it mandatory for all the credit bureaus in the country to offer one free credit report to consumers in a calendar year. Currently, there are a total of 4 credit bureaus in the country viz -TransUnion CIBIL, Equifax, Experian Credit Information Company and High Mark Credit Information Service. This essentially means you can get four credit reports in a year. Moreover, you can even subscribe to any of these bureaus and get your credit reports which also contains your credit score.
Ideally, you should not use more than 30% of your credit limit from your credit card on a monthly basis. For example, if your credit limit is Rs.1 lakh, then you should not spend more than Rs.30,000 on a monthly basis. Your credit score will improve if you manage to keep a low credit utilisation ratio.
In order to improve your credit score, start by paying your credit card bills on time. Use your credit card smartly and pay the bill on time. Do not apply for too many loans. If you have availed any loans previously, make sure you repay the loan amount within the specified tenure which in turn will improve your credit score. Also, check your credit score at least every quarter. Sometimes, your credit score may get affected due to an error. In case of any error in your credit score, get it fixed immediately.
Yes, every time you apply for a loan or a credit card, the lender conducts an inquiry regarding your credit score. Too many inquiries can severely impact your credit score. Hence, apply for a loan or a credit card only if you need it.
Whether you will get any offers on your loan will differ from bank to bank. However, if you have a good credit score, the chances of your application for a loan getting approved is extremely high. The bank may also offer you a loan at a lower interest rate if you have a credit score of 750 and above.
If your credit score is poor then it will become difficult for you to get a loan. Even if the bank approves your application for a loan, the chances are high that you will be charged a higher interest rate. Hence, if your credit score is poor, work on improving it before applying for a loan. It is also recommended you get in touch with a bank official who may offer you a solution to not only getting your loan application approved but also helping you improve your credit score.
TransUnion CIBIL is one of the leading credit information companies in India. The company maintains one of the largest collections of consumer credit information in the world. CIBIL Score plays a key role in the lives of consumers. Banks and other lenders check the CIBIL Score of the applicants before approving their loan or credit card application. Consumers can visit the official website of CIBIL to check their CIBIL Score and Report.
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