- What is a credit score?
- How to get your credit score?
- Why it is important to have a good credit score?
- How to read your credit score report?
- Which agencies in India provide a credit score report?
- How to improve a bad Credit Score?
What is a credit score?
A credit Score is a number which helps in representing your creditworthiness. Your creditworthiness is can explain your likelihood of re-paying your debts.
Your credit score will usually be dependent on the frequency of your payments being done on time. Credit scores are used by money-lenders to find out the probability of the loan being paid on time or not.
Your credit score can range between 300 to 900, with 300 being the lowest and 900 being the highest. When your credit score is on the higher side, you are considered to be more trustworthy from a financial perspective and have a responsible behavior towards repayment.
In India, there are authorized credit agencies for generating credit scores and credit reports. These agencies are authorized by the Reserve Bank of India for generating the credit scores by taking into consideration the details of your credit information.
Your credit scores are calculated on the basis of your financial data which is at least six months older. If you are maintaining a healthy credit score, it will help you in getting your loans approved in the future easily.
You can easily maintain a high credit score by being disciplined when it comes to loan repayments and having a lower credit utilization ratio.
How to get your credit score?
A good credit score is proof of your financial management being done in a good way. It will act as a deciding factor for the financial institutions when there is a loan or credit card application filled in by you.
You can check your credit score online free for once in a particular calendar year. You can visit the CIBIL website and check your credit score online. The major steps which are involved in checking your credit score online free can be listed below.
- In the first step, you need to visit the website of the Transunion CIBIL and click on the link which highlights free credit reports.
- Now, in the next step, you will have to create an account by entering certain details like name, telephone number, and email address.
- In the following step, there will be a need for filling a form for providing certain information for identity verification such as date of birth, gender, postal address, and other proofs such as PAN, Aadhar number, etc.
- In the final step, once the form is filled you will have to accept the mentioned terms and conditions. Then you can view the credit score report which shows your credit score.
However, after checking the credit score once for free; you will have to make payments when you wish to check your credit score again in the same calendar year.
In such a case, after the form has been filled you have to choose the mode of payment such as net banking, credit card or debit card, etc. A payment of Rs. 470 has to be made for checking the credit score generated by CIBIL.
After the payment is completed you will have to answer 3 questions correctly out of 5 questions related to your credit history. With the completion of this authentication, your credit score report will be available on your email address within a time period of 24 hours.
Moreover, the credit score can be checked by offline means as well. You can visit the CIBIL website and download the form. After filling out the details present in the form, demand a draft of either Rs. 550 (for both credit score and credit report) or Rs. 164 (only for credit report) can be attached along with the form.
The form has to be mailed to the mailing address of the Transunion CIBIL Limited branch in Mumbai. Your credit score and credit score would be mailed back to you.
Why it is important to have a good credit score?
A credit score which is above 750 is considered to be good by financial institutions for granting credit cards and loans. Let us have a look at some of the major benefits of having a good credit score.
Loan approval becomes easy
As said earlier, a good credit score is a key to hassle-free loan approval and credit card sanction. When you are having a credit score higher than 750, you will easily get any type of loan approved within no time.
Interest rates are sometimes discounted for a good credit score
If you have a high credit score, you are in a state to negotiate the rate of interest with the financial institutions. With a high credit score, your lender would consider you as a financial trustworthy client and can lower the interest rate even.
Chances of getting loans with longer tenure
You can negotiate on the interest rate of the loan and simultaneously can also negotiate on the tenure of the loan. Since your bank would consider you as a reliable client, you can also be successful in procuring a loan for a longer tenure easily.
Chances of getting credit cards with better rewards
When you have a high credit score, you can even be able to negotiate on the credit limit of your credit card. You can ask for credit cards that have a higher credit limit and also offer much better rewards, benefits.
How to read your credit score report?
Your credit score report is a summary of your credit activities and payment activities. Your credit score report will contain details related to your credit accounts which might be current or old in nature, closed accounts even, payment history, loans, and credit cards, the limit of credit cards, collection records, public records, and new credit inquiries.
Let us check out in details associated with the different sections of your credit score report.
The actual credit score
The section for Credit Score will mention the credit score which lies between 300 and 900. This credit score is calculated by using different factors such as credit inquiries, history of payments, age of the credit, credit exposure, etc. You should always take initiative to maintain a high credit score.
This section of the credit score report will contain personal information which is related to your identity such as your name, address, date of birth, current accounts, previous accounts, PAN, Voter ID, Driving license number, etc. You should be careful and validate if these details have been provided correctly or not.
Bank Account Information and other Financial Details
The account information section consists of credit cards, credit accounts, credit limit, loans, current balance, date of opening of the account, amount of loan procured, amount overdue, total outstanding payment, etc. You can also check that this information is correct and if there is any incorrect information, you can bring the issue to the notice of your bank immediately.
The credit inquiries section enlists the name of those companies and the exact dates on which your credit report has been viewed for any credit application. This section mostly includes information about credit reports pulled out by financial institutions. It will also consist of the size of the loan and the type of loan you have applied for.
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Which agencies in India provide a credit score report?
The Indian Government has authorized four credit score agencies that generate a credit score report. When you are making a particular transaction, your respective banks will send those transaction details to the credit score agencies.
This has been mandated by the RBI as an essential step for generating the credit score report. The credit score agencies would also try to collect information from other financial institutions about your financial habits and health.
Then the information is processed by the credit score agencies to obtain the credit score report. Whenever your banks would require the credit score report for approving any loan or credit card they will approach the credit score agencies for the credit score report.
Any credit institution, the financial institution can request a credit score report at any time. A format has been specified by the RBI, based on which credit sore agencies will share the credit score report.
The credit score and credit score report generated by all the four credit score agencies is the same and so, financial institutions can approach any one of them at the time of need.
Let us have a look at these credit score agencies which are generating the credit score report in India.
Transunion CIBIL is a credit information company that has been authorized by the Government of India as a credit score reporting agency. Transunion CIBIL maintains credit files related to around 600 million individuals and around 32 million businesses.
This agency generates credit score reports which are classified into Consumer credit reporting and business credit reporting. Consumer credit reporting is associated with information related to consumer borrowing and payment.
It helps in finding out the loan risk and also setting up the interest rate for credit. However, business credit reporting deals with the aggregated data on business finance and the information related to the payment made by businesses.
In India, Experian PLC was established in the year 2006 as a joint venture with other financial institutions and banks. The credit score report for individuals is prepared by Experian PLC on the basis of the transaction information shared by banks and financial institutions. A fee of Rs. 399 is charged by Experian PLC for generating your credit score and credit score report. Moreover, a fee of Rs. 138 is charged for generating your credit score report only.
Equifax Inc. was registered in India in the year 2010 by the Reserve bank of India. However, Equifax is one of the oldest Credit Information Company founded in the year 1899 in Atlanta. It collects credit data for more than 800 million individual consumers and 88 million businesses all over the world. Equifax Inc. charges a fee of Rs. 400 for both credit score and credit score report whereas Rs. 138 for the credit score report.
Highmark Federal Credit Union
The Highmark Federal Credit Union was founded in the year 2005 in Mumbai. It provides credit reports about customers and also has segments to help commercial and retail borrowers. A very nominal fee is charged by the agency for generating a credit score report.
How to improve a bad Credit Score?
As said earlier, a good credit score is very much necessary for obtaining loans and credit cards. In case of a bad credit score, some of the essential steps can be taken to improve credit score.
Let us check out some of the measures to improve the credit score.
Tip #1 – Regularly checking of a credit score
- You are making your payments on time
- There is no anomaly in the report
- There is no misrepresentation for the same
You should always keep on checking your credit score report regularly. This is helpful as you would be able to know about any delayed payments which are affecting your credit score and if there is any wrong information present in the credit score report can be reported for correction immediately.
Tip #2 – Always repay your loan on time. Do not bounce EMI’s
If you have EMIs to be paid, you should always be cautious about it and make the re-payment on time. When loan re-payment is done in time, it helps in raising your credit score high.
Tip#3 – On-time credit card bill payment
It is advisable to clear your credit card dues on time and always avoid spending too close to your credit card limit. This will be quite helpful in improving your credit score.
Also, you save heavy finance charges on being a balance payer.
Tip #4 – If loan or credit card is rejected, avoid applying again and again in the short while
In case you have applied for a loan or a credit card and your application has been rejected due to your low credit score then you should avoid applying for a loan or credit card again and again. You should wait for some time till your credit score improves and then you can try applying again.
Tip #5 – The low frequency of credit applications
You should avoid applying for a loan or credit card again and again. This will make banks ask for your credit score and this inquiry will be recorded in your credit score report. When this inquiry is done frequently, it will have a negative impact on your credit score and lower it.
Tip #6 – A mixed bag of credit- Secured + Unsecured
Another method by which your credit score does not get impacted is by getting a mixed bag of both secured and unsecured loans. If all your loans are unsecured then it will have a negative impact on your credit score, so you can procure a combination of both personal loans and a car or home loan.
Tip#7 – Borrow minimum amount
You should avoid taking numerous loans and should prefer taking loans only when it is extremely urgent. Numerous frequent loans would have a negative impact on your credit score. It is necessary to avoid frequent loans for obtaining a good credit score.
Tip #8 – Have joint applicants
Suppose, you are a joint applicant in a loan application and your other partner has not re-paid the loan amount then it would also have a negative impact on your credit score. In such cases, you should try to ensure that the necessary payments are made on time to avoid being a defaulter.
Hence, your credit score is a snapshot of your credit health. It will give the money lenders an idea of your capability of loan re-payment. It is necessary to maintain a good credit score to avail of various advantages related to loans and credit cards.
Your repayment history, your type and amount of debt, credit inquiries, etc. are major factors that are affecting your credit score.
You should try and be regular with your debt payments and avoid taking many frequent loans to maintain a high credit score. This high credit score would be beneficial for you in the future for obtaining loans and credit cards easily.