14-Dec-2015 written by : FSI-Team
For banks (other financial institutions too) lending is a major source of revenue and for customers (borrowers) it is a convenient way to fulfill their dreams and aspirations. Borrowing can be in the form of loans or credit card borrowing. In this mutually beneficial and mutually dependent relationship CIBIL score plays a crucial role. Credit score impacts the borrowing capacity of a person and the treatment of the past loans along with kind of debt a person has affects the credit score.
Credit score is calculated on the basis of various factors like repayment history, credit utilization, loan tenure, type of credit and credit inquiries. All these factors reflect the quality of debt you have or had and how responsible or irresponsible you have been in dealing with it. The treatment of past debts including loans and credit card borrowing contribute to a person’s credit score. Irregular banking habits like delayed credit card payments or missed/delayed EMIs have a negative impact on the credit score. If one relies too heavily on unsecured loan like personal loans and credit card borrowing then it is not a good sign for your credit score. Similarly if you are in the habit of swiping your credit card too much which causes the total amount due at the end of the billing amount to be high in ratio as compared to the sanctioned credit limit, it will have an adverse impact on the credit score.
Your banking habits, discipline not only in paying dues on time but also factors like whether one is credit hungry which is reflected by a high credit utilization ratio, too many hard inquiries for credit score contribute in making or unmaking of the credit score.
Being careful when applying for a new loan (check your credit score and the bank’s policy), ensuring that the EMI cheques are dated a day or two later then the date at which you get salary credit, not using your credit card recklessly, not pre-paying loans are a few good banking tips to have a health credit score.
Banking practices and habits of a person impact the credit score; the credit score in turns affects the future banking needs and banking terms of an individual. It is possible that one applies for a loan and that loan is rejected despite the applicant meeting the eligibility criteria because of sloppy treatment of debt in the past. Even a few loan or credit card payments missed in the past or too much dependence on debt can hamper your future banking requirements.
You might have to compromise on your dream of buying new car or a house because your loan was not sanctioned due to a poor credit score. In such a scenario the person either has to wait and work on improving the score or resort to taking an expensive loan at higher rates.
A healthy credit score gives the applicant the power to negotiate lower interest rates, get processing and other fee waiver and gives him a better and wider choice when applying for a loan. It makes his banking easier especially so when applying for a loan due to better choice, more negotiating power and faster processing of a loan application.
In these times of seamless connectivity no financial transactions can be made in vacuum. Each action correlates or impacts another in some way or another. Banking habits contribute in making a healthy or unhealthy credit score; the credit score in turn goes a long way in affecting individual banking choices and relationship.
Therefore it becomes important to keep CIBIL Score check.