21-Feb-2018 written by : FSI-Team
There are a lot of things in life which until not needed, we do not bother to have information of. The same goes with credit score. Not many of us know what is a credit report, how does credit score impact one's life, what is the importance of maintaining a good credit score, until you do not come to a stage where you desperately need a loan or a financial product.
Today we will give you a refresher on what exactly is a credit score, how does the score get calculated, are you in a loan defaulter list? And if yes, what are the hacks to get your cibil score up in no time.
A credit score is a representation of your lending history and how you manage your finances. Having a good cibil score does not mean you are wealthy. According to your payment patterns of loan EMIs and credit card dues, the lender sends a report to the credit card bureaus. These bureaus have different ways to calculate your score and store them in their system. If you happen to apply for a loan or any financial product, the lender will then conduct a background verification on you which includes name, address, occupation and your credit report. The score ranges from 300 to 900, which then decides if you are credit worthy or not. The score for each transaction made remains with the bureaus for a very long time.
Different credit bureaus follow different protocols to calculate credit bureaus. Though in India, CIBIL is the most preferred bureau by Indian lenders to determine a person’s credit worthiness. Primarily all bureaus follow almost the same system to calculate a credit score.
The Owed amount it contributes 30% of your score. If you happen to utilize your credit limit by more than 50% on your credit line, you can hamper your score. The ideal utilization should be 5% to 20%.
New credit how frequently you apply for loans. It amounts to 10%
Length of credit history the tenure of your accounts are evaluated here, resulting to 15%
Payment history being a most critical factor, which contributes a whopping 35%. Basically, your payment patterns are evaluated here.
Credit mix this can be said as an overall evaluation of your accounts. Hands out 10% of the cibil score.
The most important step is to get your credit report. In today's digital world there are many ways you can get a free cibil score. Understand where you stand in terms of credit worthiness. If you think your score is bad, you need to start working for it.
The next step would be to lower your expenses on your credit card. Make almost all your purchases via debit card or cash. As mentioned earlier, the credit utilization helps you to get your score up. Make sure you have maximum limit of your credit available.
Once you have sorted out your limit availability, the next step would be to speak to your credit card lender and ask to get your existing credit limit enhanced. There are times where you already have a pre-approved limit enhancer on your account. You just have to call and the lender enhances your limit, this helps you to maintain maximum available limit, provided you don’t over utilize it.
A human being is bound to make mistakes. If you make a sincere request to your lender to pass a good remark on one of the late payments, they can do so which will not hamper your score. You can do this for any of your previous defaults, provided the bank has the authorization to amend it with the bureau.
Once you have maintained good credit utilization on your existing cards, try applying for other cards as well. If you have multiple credit cards with you, that means each lender will send your report to the bureau and if you make your payments on time, you cibil score goes upwards in no time. The goal is not to overspend your card and make all the payments on time.
There are no wrong ways to enhance your cibil score, but to do financial things right. If you have sound knowledge of how financial products work, you can ace this game with flying colors which will result in great financial prospects in future.