Don't have a credit score? Why you must build it?

24-Nov-2018 written by : FSI-Team

3 Tips to Get Your Personal Loan Approved

You must have read so many articles saying why loans have made life easier? How to get loans at a better interest rate? How can one apply for a loan and not get rejected? How are credit score and credit report related to loans? What is the credit score or credit report? All this question lead to a catch 22 situation. A credit score is established when any of the credits are taken. Credit here had both, credit cards and loans than one may have applied for. But, a person can get a credit only when they have a credit score! So it’s a little complicated here!

However, the catch is that once there is a stable income for any person, the banks may consider approving a credit card with a basic limit or give a secured kind of loan. Once the credit is taken, it takes the first six months to get the score established. After six months the score is reflected. If there a good stable income for more than six months and a job that is in a reputed organization, then one can also apply for a personal loan without CIBIL score. A basic amount loan after checking all the criteria may get approved. Now, it is very important for each individual to know that what is credit score and credit report.

Credit score:

A credit score is a three-digit number ranging from 300-900. 300 is the lowest and 900 is highest. Any score which is lower than 600 is a low score. A score ranging from 600 – 750 is an average score and 750+ is considered good. How is this score determined? There are different credit bureaus that are established who have their own algorithms to get the score. The 4 bureaus in India are TransUnion CIBIL (Credit Information Bureau India Limited), Experian, Equifax and CRIF HighMark. The basic parameters to check are also the same.

1. Payment history: How responsible has been the individual, is the first and the major factor that makes the score. It usually has 35% weightage.

2. The amount owed: How much credit has been taken till date is the second major factor that makes the score. Usually, it is 30% of the total score.

3. New credits: How frequently a new line of credit is established, is also one of the factors. But that doesn’t mean you will keep on applying for new credits. Too many inquiries show if you are in too much need of funds may fall into credit hungry behavior. This has 10% weightage.

4. Credit mix: A good mix of the secured and unsecured loan along with revolving line of credit and fixed credits also has the 10% importance.

5. Length of Credit history: How long has it been to the credit line. Older the credit more is the weightage. So do not even close a credit line if you are no longer using it as this also has 15% weightage.

First two parameters are constant and have the same weightage in all the bureaus. Last 3 may vary by 5%. and hence there can be 50 points difference in the score fetched from any two different bureaus.

Credit Report:

A credit report has detailed information about the individual and the credit score parameters. With the score, detailed information on all credit lines, their payments, hard inquiries for any credit, personal information like PAN card details, address, phone number etc are mentioned in the credit report. According to the RBI mandate, each credit bureaus have to give one free credit report per year to any individual. CIBIL being the first bureau that was established in India, free CIBIL Report is looked up for usually.

A good score gives the idea to the financial institution that you are a responsible payer and hence will not default and make their money on risk!

With the above-mentioned points, now it must be easier for you to understand that what is credit score and credit report. Just remember these few simple rules and your score will never drop beyond 750.



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