At some point of time in our life,we may need a Loan to fulfil our dreams of buying a house,a vehicle or any other personal need.Some of us also want to have a Credit Card and submit the application with the banks.Sanctioning of these Loans or Credit Card to you depends upon your Credit Score.
What is Credit Score
Credit Score is a numeric number which reflects your credit history and credit worthiness.Credit Score is included in your Credit Information Report (CIR) which is issued by a Credit Bureau.In India Credit Bureau is Credit Information Bureau India Ltd (CIBIL) and issues the Credit Score to Individuals and Non Individual or Commercial Entities.
Credit Score ranges from 300 to 900.The higher the Credit Score of the credit seeker,the higher is the probability of getting loan approved.80% of the loans sanctioned are to the individuals with a Credit Score greater than 750 and 90% to individuals with Credit Score of above 700.
Banks keep submitting the individuals data each month to CIBIL and the later keeps updating the score accordingly.You can check your Credit Score Online by paying a fee of ₹ 470 (via net banking or credit or debit card).
When you apply for a Loan or Credit Card to the lender,the first thing they do is to check your Credit Score.If you have a low score,your application is likely to be rejected straightway at the very first step.If you have a healthy score,then the lender checks for other particulars like your current income,the current EMIs you are paying for any other loan.
If you are already paying EMIs equal to 50% of your income,your application is less likely to be entertained.This indicates that you are already having so much of burden of credit and are more likely to default towards your payments.
How to Improve Credit Score
As we talked above that the score reflects your credit history,so if you have a good credit history regarding your previous payments towards bank loans or credit card account,you may have a good credit score.Here are few tips to improve your Credit Score in case you have bad credit history –
1. Paying your bills on time– You should make it a habit to pay all your bills on time.Late payments show that you are not very responsible towards making payments.This creates negative image in front of your lender.
2. Don’t apply for too many loans– If you apply different loans with different lenders at a time,obviously every lender is going to enquire your credit history with the CIBIL.Seeing too many applications makes you be seen as credit hungry and that is not a good thing for your loan application.
3. Keep healthy mix of different types of loans– It is good for your Credit Score if you have a credit history of mix of loans such as home loans,auto loans (known as secured loans) and personal loans or credit cards (known as unsecured loans).Having too many unsecured loans may go against you.
4. Keeping credit card accounts active– If you own a credit card but don’t use it,you may be thinking of closing your credit card account.It is advisable to keep those credit card accounts active even if you don’t want to use them.It shows that you are responsible towards your finances and is a positive point in your credit history.If you are using credit cards,ensure making timely bill payments.If you are unable to pay total outstanding,make sure to pay at least minimum amount due by due date.Also try not to use more than half of your credit limit of your credit card.
5. Taking care in joint accounts– If you are having a joint account or agreement with someone,you need to keep vigilance on the payments made from that account.Payment defaults from your partner may also affect adversely your credit history and Credit Score.
Following these tips,you can improve your Credit Score significantly.If your score is not good and your are in need of loan while your application is being rejected,you may also buy Credit Score by paying certain fee.
Having a good Credit Score,apart from making your Loan application process easily,also ascertains that you may get a handsome deal on the Loan.You may get an offer of lower interest rate than the other individuals.Although it is the solely discretion of the lender,they may benefit you to the extent of half or a quarter of a percent in reward to your being responsible to making payments.
Apart from the score above stated,it is also possible that you may have status as NA or NH in your credit report.There is no worry if you have these statuses instead of Credit Score.This just indicates that you have to credit history or your details are not available with the Bureau.You are new to the Credit System.
Recently CIBIL has produced updated version of Credit Score called as CIBIL TransUnion Score 2.0.In this score a score of 1 to 5 is assigned to individuals with credit history of less than 6 months.Higher (4 or 5) the score of individual lower is the risk for the lender.With individuals having credit history of more than 6 months score is 300 to 900 as we talked above.