05-Oct-2016 written by : FSI-Team
Getting a line of credit, be it a loan or credit card may be a tad easier than it ever used to be, owing to a larger number of willing lenders as compared to earlier, but it also comes with a caveat. While banks and financial institutions do look forward to lending, they also look at lending to the right customer profile. One of the first things that a lender would want to ascertain is the creditworthiness of a borrower, that is the likelihood of the loan going ‘bad’ or the customer defaulting on loan repayment on disbursal.
How then does a lender get this crucial information, which can often be the deciding factor between a loan application being rejected or sanctioned? Or if not rejected outright, then possibly with a rate of interest significantly higher than it would have been otherwise? The answer is simple – lenders look at your credit information report, and the credit score that is derived from it. This data is published by credit bureaus such as CIBIL, Equifax, Experian and CRIF High Mark in India, based on the data submitted to them by their members, which are none other than banks and other financial institutions.
The score is a three-digit numeric representation of your credit report, and typically ranges between 300 and 900. It is understood that an individual with a higher or good score is less likely to default on repayment. A CIBIL score of 750 and above is considered to be a good score. Note that each lender may differ slightly when it comes to the actual score, but the algorithms used at the back end to derive the score are more or less constant. This is because a score is dependent on a number of factors, all of which constitute the score.
A credit score depends upon the following parameters:
You can work towards planning your credit score by ensuring you monitor the below mentioned parameters:
Remember that to build a good credit score requires a combination of financial discipline, hard work and perseverance. While it is easy for your score to drop on account of poor credit habits, to subsequently increase the score is not all that simple, while not altogether impossible either. You need to know how to clear CIBIL issues and stay out of the CIBIL defaulters list, if you want your loan or card application to be approved. However a more prudent stance would be to ensure not getting there in the first place, and working your way towards a sound financial future. Hence, sound planning will ensure that you do not miss out on having a good CIBIL score, one that will help you in the long run.