21-Dec-2015 written by : FSI-Team
Planning to go on vacation? Buy a new house? Have business expansion plans? If the answer is yes, and you are looking for finance to meet these needs, there are various loan options available in the market today. When you apply for a loan, be prepared for various checks that the financer will conduct, primary among which is a CIBIL score check. Credit information companies or credit bureaus provide a credit report (of which the score is an integral part) that lenders call for when you apply for a fresh line of credit, be it a loan or even a credit card.
A credit score talks about your creditworthiness, that is your willingness as well as ability to repay any outstanding debt you may have. Typically ranging between 300 and 900, a higher score can be your key to good credit health.
Each lender has their own parameter of a good or bad score, and uses the score as a guideline to determine whether or not to lend to a particular customer.
Say for example a person has a high score. It is more likely that this customer is financially solvent and will repay the debt they have availed of. On the other hand, someone with a lower score is less likely to be disciplined when it comes to servicing debt.
Of course, a score is not applied in isolation and there are other factors that a lender keeps in mind when reviewing a loan application.
A CIBIL score is nothing but a credit score, provided by CIBIL, India’s oldest credit bureau. There are four bureaus licensed by the Reserve Bank of India. With CIBIL instantly creating recall in consumers’ minds, a credit score is often colloquially known as a CIBIL score.
However, each of the four bureaus – the others being Equifax, Experian and CRIF High Mark – also provide credit reports and scores.
A credit score plays a critical role when you apply for a loan. Here are some of the reasons why you should check the same prior to loan (or for that matter, credit card) application:
Identity theft – An alarming trend that is on the rise globally, identity theft occurs when someone fraudulently uses your personal information from identity and address proof documentation to apply for credit in your name. In such an instance, in the event of a default the lender would contact you for payment of dues, as the loan would be on your records.
Incorrect information – Remember that bureaus themselves have no control over the data, they prepare credit reports purely based on the information that their members (none other than lenders i.e. banks and financial institutions) provide them with. Incorrect or erroneous information needs to be brought to the attention of the concerned bureau immediately for rectification. This is because information if inaccurate, can impact your score adversely.
Preferential pricing – A good or healthy score can have a favourable impact on the pricing of your loan, when you apply for one. For example, if Akhil has a score lower than Nilesh, it is very likely that Nilesh will not only get the loan amount he has requested for, but also at a rate of interest lower than what Akhil would pay. Other terms and conditions of the loan could also tilt in Nilesh’s favour. Hence, over a period of time, with a better score you have the potential to save a significant amount of money.
If you’re planning ahead, consider calling for a copy of your credit report a few months prior to loan application. This will allow you plenty of time to have incorrect information (if any) rectified. Further, if your score is low, you also have a window to work and improve CIBIL score.
Firstly, call for a copy of your credit report. Once you have gone through the same and seen your score, you could speak with a representative of a credit health management company such as Credit Sudhaar. In tandem with a trained credit counsellor, you can work towards improving and even enhancing your score over a period of time.
This ensures that when you indeed require credit, you are not denied the same or given a loan at a higher cost owing to a poor score.