Importance of Credit Report & Score in today’s world

This is world of materialistic things and we all want to buy essential items like homes, Cars and also the luxurious items like high end smart phones, fancy electronic gizmos etc. In today’s world buy now and pay later concept is very much common and most of the youngsters want to enjoy things today at the cost of future income. For taking a loan Credit score has become very important. Without a good score getting a loan from Banks/NBFCs is almost impossible. In this report we will understand about credit score and how to keep it good so that our loan proposals not only get passed but also at a competitive rates.

A record of borrowers’ transactions is referred to as credit history. This history is essential for individuals to understand their financial transactions. A summary of an individual’s credit history is known as a credit report. A credit report contains information such as the individual’s credit score, account information, contact information and so on. One aspect of the credit report that is equally important, is a credit score. If a credit report is a summary of the individual’s credit history, then a credit score is a 3 digit numeric summary of that individual’s credit report. This score can range between 300 to 900 and score closer to 900 to get better access to credit products such as credit cards and loans. If you have a high score, it suggests that you have been a responsible borrower.

 

There are four main factors that make up your score:

1. Past Payment History: normally last three years payment history

2. Number of Credit Exposures: How much and from How many companies

3. Credit Types and Duration: like Credit Card, home loan, personal loan etc.

4. Other Factors: like no of loans applied recently

 

The Credit score is affected by many factors in addition to payment history and credit exposure, among others. However, there are some factors which will have no impact on it. Here’s a list of them:

 

1. Checking your own credit score

2. Savings Account

3. Fixed Deposit

4. Debit Card

5. Income

6. Overdraft Limit

7. Cheque bouncing (other than loan EMIs)

8. Education

 

Keeping high score is advantageous even if you are not in the need of loan immediately, few advantages of high credit score are as mentioned below:

1.    Cheaper interest rates on loans: High credit score can get you lower interest  paying loan from the same Banks as compared to someone who has lower score.

 

2.    Credit Cards with better benefits and rewards: Banks can offer credit cards with more benefits to those who have high credit score.

 

3.    Avail pre-approved loans: High credit score may get you pre-approved loan even before applying for it.

 

4.    Loans with longer tenure: High score may give you more flexibility in payment terms and durations as compared to someone with lower score.

 

5.    Quicker approval on credit applications: Banks have to follow the process and high credit score makes the things easier and they may be required to do less investigation which makes the process faster for them.

 

6.    Negotiation power: Having high credit score gives you multiple option to borrow, so we get more negotiation power.

 

7.    Discount on loan processing fees and other charges: Credit     Institutions wants good clients and they are ready to offer discounts for them who have good credit score.

 

8.    Higher credit card limit: Banks are ready to give high credit card limits to those who re good in repayments.

 

You can improve your credit Score by maintaining a good credit history, which is essential for loan approvals by lenders. Follow these steps which will help you better your score:

1.    Always pay your dues on time: Late payments are viewed negatively by lenders.

2.    Keep your balances low: Always be prudent to not use too much credit, control your utilization.

3.    Maintain a healthy credit mix: It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.

4.    Apply for new credit in moderation: You don't want to reflect that you are continuously seeking excessive credit; apply for new credit cautiously.

5.    Monitor your co-signed, guaranteed and joint accounts monthly: In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder's (or the guaranteed individual) negligence could affect your ability to access credit when you need it.

6.    Review you credit history frequently throughout the year: Monitor your CIBIL Score and Report regularly to avoid unpleasant surprises in the form of a rejected loan application.

 

Check your CIBIL score for Free:

Few years back, Reserve Bank of India (RBI) made it compulsory for all the credit bureaus in the country to offer one free detailed credit report per calendar year. You can visit the official website of CIBIL www.cibil.com and get your free CIBIL score and report.

You can also take an experts help, If you have low credit score and wants to improve it.