20-Oct-2015 written by : FSI-Team
Your credit score is the key to your credit and financial health, and is the first documents lenders use to assess an individual’s loan or credit card application. Typically between 300 and 900, it is a three-digit numeric representation of your credit history, encompassing details on loans and cards (both existing and closed) availed by you and the repayment record on these.
Simply put, it is a document that virtually holds the key to any future debt you may wish to avail of, and is fast gaining recognition as an essential tool by which to gauge a person’s creditworthiness. Generated by the four credit information companies, or bureaus, in India namely CIBIL, Equifax, Experian and CRIF High Mark, a credit report deserves your attention and care. Further, with the concept fast gaining acceptance, a credit score has other uses as well – employers now check the report as part of their candidate hiring process, to ensure a right fit in the organisation. Telecom companies have also caught on to the practice, in determining not only the credit limit that will be assigned to you but also to arrive at the amount of security deposit you need to pay at the time of availing a new connection.
Identity theft – With the inroads digital technology has made in our lives, in addition to the progress there is also the very real possibility of identity theft. In such an instance, using your documentation (PAN card, passport, Aadhar card etc.) another person can avail of loans, credit cards, open bank accounts or avail of telephone connections, to name a few alarming outcomes. Hence, it becomes critical to check your credit report at regular intervals, say annually, to ensure that the information therein is accurate and up to date. If you see any loan or card account that you are unaware of, you should report it to the concerned bureau at once, for it is likely that you have become a victim of identity theft.
Co-signing a loan – Let us assume your nephew wants to study overseas and is availing of an education loan. He approaches you to be the co-signer or guarantor, as nobody in his immediate family fits the required income norms specified by the lending institution. While prima facie this would appear to be a good turn, do be cautious. Once you sign as co-applicant for a loan, your responsibility to pay off the loan is as much as the main applicant’s, or the borrower. Hence, be very sure of the person you are willing to support, because if they default on the loan, not only will you be required to pay up, and in the event that you are unable to do so, your credit score will take a hit.
Paying dues on time – Availing of a loan or card is probably the easy thing to do – next is paying the EMI or card outstanding in a timely manner, on or before the due date. Failing to do so will not only attract additional charges (which can be quite steep) from the financial institution, but will negatively impact your credit score as well. If you think you are unable to remember the due date, consider setting up a payment alert on your mobile phone or via e-mail. You could also opt for auto debiting your bank account (make sure it is adequately funded!) or setting up an ECS mandate. This will ensure you are never late with a payment, let alone skip it altogether!
Get a copy your credit report – The first thing to do would be to get a copy of your credit report from a bureau. Once you have received the same, go through it at length to ensure that there are no discrepancies in the data therein. If you believe any of it to be erroneous, do bring it to the attention of the concerned bureau, and have it rectified. Once this is done, your score will improve. While none of the bureaus currently offer free reports, they are available to purchase on payment of a nominal fee. It is a good practice to obtain your report, as it is a small price to pay for security!
Avail of credit counselling – Does your credit score seem to be lower than you had anticipated? If you are looking to better your score, you could consider availing credit counselling services. With the help of trained professionals, you could over a period of time not only build up your score, but also protect it. Yes, this does take time and a certain amount of financial discipline but the task is not insurmountable. Remember, at the end of the exercise you will be left more credit healthy as compared to when you started out.
In conclusion - There is no doubt that ensuring your credit health is the way to go, for it can play a critical role in several aspects of a person’s life. Taking timely steps to boost your credit score is essential, and it is never too early to begin.