01-Nov-2017 written by : FSI-Team
What is a credit score? Ever heard of it? What's in it for me? Is it really necessary to have one? I have not encountered a situation or need where a credit score will play a role. Why should I bother? This is the perception of maximum people who don't have any idea about cibil score and its importance.
Your credit score is a number which reflects to the lender while doing a background check when applying for a loan or any financial product.
A credit score is earned by an individual by making all his/her payments on time. It is calculated with a formula which is based on different variables like, your payment history, amount owed, number of credit lines towards your account. It has a direct effect on your loan interest rate and also the possibility of you getting a loan or denied. There are categories of score which will mean a lot while borrowing a loan. It has always been a mystery on how the scores are calculated, well that depends from ranges of financial products and from which lender you are borrowing the loan from.
In India, there are a lot of credit bureaus but the lender always prefer Equifax, Experian, Cibil and Transunion, cibil being the priority. Maximum banks seek help of cibil score determining your credit health and understanding if they will be lending you money or not. You can pull up your free credit score from each of these bureaus just to check if your scores in place as you expected them to be. If you find any errors in your report, you can raise a dispute with the bureau and it shall make the necessary rectifications. Do not overdo it, i.e. do not get the report more frequently as getting the report frequently also can decline your credit score.
Credit scores and their understanding
This score reflects when you do not have a score at all, i.e. you have never applied for a loan and neither have you had a financial product. Do not worry this is not the end of world; you can give it a fresh start. Explore your options on financial products and get what is feasible for you and make all your payments on time.
If you are in this category, that means you need to work on your financial stability really hard. This score is a direct reflection of your irregular payment patterns and so. If you have not made payments on time especially on a personal loan or a credit card, you will be in this category. This can also be a result of bankruptcy, and this score can remain on your report for up to ten years. You cannot avail any type of credit if you fall in this score range.
This category is also called the no man's land; you are neither good nor bad. In this category you need to work a little harder to get into good books. Usually if you score is fail you can still avail a line of credit but the interest rates will be higher than the market standards and you will face a lot of documentation and processing formalities. You can improve your score by making your payments on time and manage your financial products properly.
If you are in this score category, you are practically amazing in terms of managing your dues and expenses. A very few people default their loans in this category. This range opens up all the possibility to borrow loans from lenders with ease. You also stand a chance to negotiate the interest rates while borrowing funds as your repayment patterns are great and this is what every lender these days need.
A very few people achieve this milestone and it takes a lot of planning, dedication and integrity to achieve this score. These people have a long history of no default payments and also know how to manage their score. The customers with 760+ score receive best offers which are available in the market in terms of loans and credit cards and also the terms and conditions are less as compared to other score holders.
The credit range reflects a lot about your financial status and it is really important to maintain it as it can be your savior in bad times. Good habits help you grow in life and maintaining a healthy credit score is also one of them.