Getting a loan sanctioned has never been easy; myriad banks, myriad policies, and myriad challenges to counter. Well, there is a concept that makes the job a little easy, concrete, and understandable.
Defining Credit Score
A credit Score is a 3-digit score between 300 and 900 which denotes a customer’s credit risk. The score is directly proportional to the credit profile of the customer. This means that your credit score defines how safe it is for someone or some organization to credit you a loan.
Why should you be concerned with your credit score?
More is the credit score, less are inaccuracies and risks in it, and more likely is a bank to credit you a loan. It is upon your credit score that the bank will decide whether to sanction you a loan or not, and how much to offer.
A score 750 points and over is rendered excellent, whereas that between 650 to 750 is rendered medium. Something lower than these scores reduces your chances of procuring a loan.
Who calculates your credit score?
The Reserve Bank of India licenses the ‘Credit Information Companies’ or ‘Credit Bureaus’ regulated by the CIC Regulation Act 2005.
Credit Bureaus gather data and insights from banks on an individual’s financial behavior, and make a financial profile, which eventually becomes your ‘credit score.’
India has 4 credit bureaus presently, namely, Transunion Cibil Ltd, Equifax, Experian and Crif Highmark.
Significance of the credit score
A good credit score has the following benefits:
- Increases the prospects of the loan getting sanctioned.
- Helps the customer get a lower interest rate on the loan.
- The customer gets access to some loan and credit card offers.
- Increases the chance of procuring sanctions to the higher amount of loans and credit card limits.
- Helps in getting a longer repayment period for loans.
Maintaining a Good Credit Score
- In case one has not availed of any loans, then one should take a credit card with a smaller credit limit.
- Keep making regular and timely payments.
- Ensure that the EMIs, and installments on your loans/credit card bills are paid before the due date.
- Maintain a credit utilization ratio below 35%.
- Avoid multiple or frequent inquiries.
- Better to track the loans where you have signed up as a guarantor since a fault by the borrower will also affect your credit score.
- Go through your credit report regularly. If you find any faults, get them resolved through the dispute redressal mechanism of the credit bureau.