What is a credit score
A credit score is a three-digit number normally between 300-900 that represents your creditworthiness. A higher CIBIL score depicts good credit history and responsible repayment behaviour. It also increases your chances for easy loan approvals as banks, and NBFC will believe that you have the ability and good track to repay the loan. A credit score check is essential.
Credit score and its importance
If you have a good credit score, lenders will consider you as a responsible debtor, and they approve your loan easily. Banks check your credit score when they determine your eligibility before granting you a loan.
It is important to know about your credit health before applying for a any loan. You should check your credit score as it gives you an idea of where you stand in terms of your credit history and your earlier repayments. If your credit score is low, you can take time and work on it to gradually increase it by taking the right measures.
A score which is lower than 750 is considered as a low CIBIL score. Banks generally do not sanction personal loans of people with a low CIBIL score, or even if they do, they may charge a very high rate of interest. When applying for the loan, CIBIL score is the first thing they would check.
It is generally advisable to have a credit score of 750 or above for any loan. Your credit score gives potential lenders a quick idea of your credit health.
A good credit score is not enough to get a loan.
While a good credit score is must, but it doesn’t necessarily ensure that your loan application will be approved.
No Credit Score?
Your credit score works like a report card for your credit status. It is calculated based on several factors like credit history, repayment behaviour, and type of credit, among others. Long credit history makes it easier for lenders to make a good decision about offering you a loan. However, if you don’t have a credit score, the lenders will take into consideration other factors like your age, income, job stability, etc to evaluate your creditworthiness.
Having a credit score makes it easier for you to get access to credit products.
• Limit Credit Usage: It is advised not to exhaust your entire credit limit and not spend over 50% of the credit card limit.
• Make timely payments: Ensure to pay all the bills and dues on time and avoid any delays in order to maintain a healthy credit score.
• Review your credit report: In addition to credit Score, do check your credit report as it may have errors. It is better to review the details of your credit report regularly.
• Credit Utilization – It is another important factor that is considered while checking the credit score. The amount of credit that is available to you vs how much of it you are using shows your dependency on credit money. It is advisable that people keep their credit utilization below 30%. So, if you have multiple credit cards, you must keep a check on how much money you are using on credit. Also, try to find the credit card issuer who accepts multiple payments in a month.
Credit scores are usually not the only thing lenders look at when deciding to extend you credit or offer you a loan. Your credit report also contains details which are taken into consideration, such as the total amount of debt you have, the type of credit in the report, the duration of credit accounts and any public marks you may have. Other than your credit report and credit score, lenders also consider your total expenses against your monthly income (i.e debt-to-income ratio), comparing it to the type of loan you’re seeking.
Factors That Affect Credit Score
Credit score is generally affected by information in your credit report, like:
· Payment history of loan and credit cards, including the details of late payments
· Credit utilization rate
· Type, number and age of credit accounts
· Total debt
· Public records such as a bankruptcy
· New credit accounts recently opened
· Number of inquiries for your credit report