Understand Your Credit Score and Report

A good Credit Score plays a significant role in making you creditworthy. Every time you apply for a credit card or a loan, the lender approaches a Credit Bureau to assess your Credit Information Report.

Your Credit Report is basically a report card of your financial health. It records your past credit transactions and repayment history and calculates a three-digit score known as a credit score.

India has four major Credit rating bureaus:

• TransUnion CIBIL Limited
• Equifax Inc
• Experian Plc
• CRIF High Mark

Credit Score by CIBIL is a credit rating benchmark in India. The CIBIL score ranges between 300 to 900 points. A higher CIBIL score signifies a robust credit health of the individual. If you have a score above 700 points, you have a good score and the lender would prefer to lend you. However, with a low score, you must improve the score before applying for a loan or the lender would charge you higher rate of interest.

You can still get a loan with a low score however the good score will ensure a better deal. 

Those who have a relatively new credit history will not have a credit score. CIBIL instead grants a risk rating ranging from 1 to 5, based on the repayment history of the new account holders. The high rating of 5 indicates a low risk for the lender while the rating of 1-2 indicates highly risky to lend.

How do you get a Credit Score? 

As you begin to build a credit history, you develop a credit score. According to CIBIL, a credit score granted to an individual indicates that the credit rating agency has received at least 6 months of individual’s credit history in the last two years.

For new accounts, they extend a Transunion Credit rating ranging from 1.0 to 5.0. Like a credit score, higher credit index is synonymous to a better credit rating of the prospect.

The credit score of a consumer depends on various aspects:

1. Repayment history

Your repayment history constitutes a major part of your credit score. Every time you repay your EMI and credit card bill on time, your credit score goes up.

2. Credit utilisation ratio

Your credit card spends also affect your score. Always try to keep your monthly spends below 30% of the total credit limit granted to you. Too much credit usage makes you credit hungry and lowers your credit score.

3. Length of history

Your credit history is an important criterion for the lender. It does matter to the lender for how long have you been repaying your dues on time. The longer the clean history you maintain, the better are your chances for fast approval at a low rate.

4. Latest loan

What loans you currently owe also make part of your score. For, your loan eligibility falls with the number of EMIs you pay. The lender considers your debt to income ratio before approving a new loan.

5. Credit mix

Another important factor is the type of loans you have. If you have too many credit cards and unsecured loans, it reflects your high expenses. This makes you a risky profile to lend further.

How to check your credit score?

You can conveniently check your credit score free of cost online.  All you need to do is visit CIBIL’s official website and follow the following steps:

Create your user account on the official CIBIL website. Save user name and password.

Enter personal details such as date of birth, address, Aadhar number, and pan card.

Verify your identity. This step involves authentication of your credit history. You would require your credit account details to complete this step.

Get a credit report and check your score.

Whenever you pull out your credit report, it doesn’t affect the score as it is considered as a soft query. However when you apply for a loan, and a lender checks your credit score, it is a hard query. Too many hard queries can hurt your score. This is why it is recommended to compare loans online before contacting a particular bank or NBFC.

What spoils your credit score?

Any of the following points can hurt your score:

• Missed or irregular EMI repayments.
• Rolling up credit card balance too often.
• Exhausting credit limit every month.

Making loan queries to different lenders multiple times in a year.

If your co-applicant defaults; or account you guaranteed for, defaults.

What improves your score?

Follow some easy steps to improve your credit score:

You must always automate the EMI repayments and credit card bills.

Always keep a check on your credit utilization. It is important to plan the payments and keep spending low on credit cards.

Always use a mix of credit products. Include both secured and unsecured loans in your borrowing basket. Too many unsecured loans reflect negatively in your report. For example: if you only use Credit Cards and Personal Loans, it will show your credit hungry behaviour. However, if you also have an Auto Loan or Home Loan, your profile appears balanced with assets.

If your credit card spending is high, you must apply for another card to ease the credit utilisation ratio. However, it is important to not apply for new cards too frequently.

Always ensure that people you co-signed a loan for or signed as a guarantor for, are regular in repayments. Any negative transaction on their accounts will appear negatively on your report as well.

Review your credit report twice a year as it helps you review your score periodically.

Always dispute an unidentified transaction and report the concerned authorities.

Following these simple steps, you can conveniently maintain a score.