 "Ranjit Punja: Lenders prefer a credit score of 750 or more")
Whenever an individual avails a loan or credit card, the lender reports the details, such as outstanding, interest rate, and equated monthly instalment, to credit bureaus.
The bureaus convert this information into a credit score which helps lenders to take informed decisions.
The bureaus convert this information into a credit score which helps lenders to take informed decisions.
The Cibil score is a three-digit number ranging from 300 to 900. This score helps lenders to understand the credit profile and repayment behaviour of the applicant and quickly process a loan.
Usually, financial institutions are comfortable lending to individuals with a credit score above 750, and most lenders recognise that such customers have a low probability of default.
Advantages of good score
Credit score plays a very important role in your financial journey. With a good score you are likely to have more financial options. A good credit history means banks are more likely to approve loans; you can get a lower interest rate; loan approvals are faster; documentation is simpler, and can also help to get a higher loan amount.
Credit score plays a very important role in your financial journey. With a good score you are likely to have more financial options. A good credit history means banks are more likely to approve loans; you can get a lower interest rate; loan approvals are faster; documentation is simpler, and can also help to get a higher loan amount.
Building credit score
The Credit Information Bureau (India), or Cibil, was founded in August 2000 and is the oldest of the credit bureaus to be established in India. There are two other popular credit bureaus that are authorised by the RBI to issue credit reports in India - Equifax and Experian. While CIBIL has the largest amount of data, especially older, the other bureaus are catching up, with significant overlap especially with more recent data.
When you approach a bank for a loan, it is your Cibil score that determines credit worthiness and loan-eligibility. If you have a low credit score, you can rebuild it by focusing on certain areas.
Payment track record: If you have missed or made any delayed payments in the past, your credit score will be negatively affected. Your repayment record forms a significant part of your credit score, so in order to increase your score, you need to make all your loan repayments on time and in full.
Credit utilisation ratio: Spending a high percentage of your total credit limit on your credit cards is a sign that you are in need of credit. Make sure that you do not exceed more than 50 per cent of your credit limit. This will have a positive effect on your credit score.
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Excessive number of credit cards and loans: This is also a sign that the customer is hungry for credit. Make sure that you maintain a reasonable number of credit accounts (credit cards and loans) in keeping with your income and payment ability.
ALSO READ: Good credit score isn't enough
Excessive number of credit cards and loans: This is also a sign that the customer is hungry for credit. Make sure that you maintain a reasonable number of credit accounts (credit cards and loans) in keeping with your income and payment ability.
High percentage of unsecured credit: A secured loan is taken against a security such as a home or vehicle. An unsecured loan is taken without any collateral. A disproportionate amount of unsecured credit (regular credit cards or personal loans) has a negative effect on your credit score.
Length of credit history: Sometimes loan applications are rejected simply because the applicant does not have a sufficiently long credit history. Potential lenders are unable to evaluate the customer’s creditworthiness in the absence of enough data. The longer the age of your credit accounts and the longer a record of your credit behaviour, the better it is for your credit score.
Multiple credit applications in a short span of time: If you have applied for multiple loans/credit cards within a short period, it is an indicator that you are in need of credit. This has a negative impact on your credit score. Moreover, each loan/credit card rejection can lead to a further decrease in your credit score. Make sure that you only apply for credit where you have the best chance of being approved.
Number of ‘Settled’ or ‘Written-Off’ accounts: Any settled or written-off accounts have a negative effect on your credit score. You can convert a settled or written off account into a ‘closed’ account by making a mutually acceptable payment to the lender. Ensure that in future you avoid such a status by making all your loan repayments in full.
Improving credit score
Analyse: Obtain a copy of your credit report and identify the issues that are dragging down your credit score. Take immediate steps to address these problem areas.
Rectify: If there are any errors in your credit report, file a dispute with the credit bureau immediately so that these can be rectified. For example, a loan might be shown as outstanding when you have already paid it in full.
Rectifying this error will see an immediate increase in your credit score. In addition to administrative or reporting mistakes, some errors might be also the result of fraudulent activity on your credit account. Checking your credit report will help you resolve these issues and increase your score.
Rectifying this error will see an immediate increase in your credit score. In addition to administrative or reporting mistakes, some errors might be also the result of fraudulent activity on your credit account. Checking your credit report will help you resolve these issues and increase your score.
Payments: Pay all your bills on time and in full. This is the best way to improve your credit score quickly. Improving your credit score is entirely in your hands. All it requires is a certain amount of commitment and spending discipline.
The writer is CEO and Co-Founder of CreditMantri
