21-Mar-2017 written by : FSI-Team
Of late credit scores have emerged as the single most influential factor that determines whether you qualify for credit or not. It wouldn't be wrong to say that credit scores shape the financial future of an individual. With good scores one can gain easy access to loans and borrowed funds. While with poor scores one can be barred from using a credit facility with a bank.
Access to funds means greater financial strength. For example, if you have a good CIBIL score you can apply for a personal loan or business loan which can be used to grow one's business venture. Funds can be used to buy more raw materials, invest in manpower, marketing and research or purchase intellectual property rights etc. Either ways with more funds you improve your chances of earning more money. As the saying goes, "success breeds success".
Basically, with unobstructed access to funds you gain confidence. And this confidence is what takes you ahead in life. Picture this. You have been planning to buy a new car. You have researched about the different makes and models of various car brands. You have told the world about your plans. But you are denied a car loan due to a poor CIBIL score. How embarrassing will it get?
It is true that people have been talking about credit scores a lot lately. But the truth is the "hype" comes from the fact that most of them do not comprehend how credit scores work and what goes behind CIBIL score calculation. With no knowledge, some gullible people become easily scared of their scores.
Don't get caught in the hype unawares. Rather apprise yourself on how credit scores work. There is no need to be afraid of how to manage credit scores. Infact, if you are careful enough you will realise a high score is actually a friend of the borrower. This is how it works:
1) Credit scores have everything to do with your liabilities. No part of your wealth such as properties and income or salary has anything to do with your credit score. So your credit cards and different types of loans & advances are part of your CIBIL report.
2) CIBIL records, maintains and periodically updates CIBIL report of every individual. This data is received by it through its member credit institutions. None of the data can be changed upon request from the customer. Credit bureaus can only update records based on information received from banks and NBFCs.
3) Based on all your past credit data, CIBIL calculates your CIBIL score. The score is a numeric summary of your credit history. Lenders also view your report alongside your score, to review your behaviour as a borrower in the past in detail.
4) With timely repayments and low usage of credit facilities, you would have a high score. If you have applied for too many credit products then you would have an equivalent number of inquiries into your credit report, which will impact your score negatively.
5) It is important that you understand the factors that affect your credit score positively and factors that affect your score negatively. Focus on improving your credit score by imbibing practices that will enhance your credit score, at the same time avoid those that will decline your score.
6) Maintaining a CIBIL score of 750 or more, out of 900, is considered good. Banks fall upon each other to do business with such individuals. An individual with a high score not only finds it easy to borrow funds but can also negotiate better and favourable terms of loan agreement, such as low interest, waiver of processing fee etc.
7) For someone with a score less than 650, accessing loans would be difficult and may have to borrow at a higher rate of interest.
8) For those with yet lower scores, accessing loans becomes nearly impossible. Oftentimes, such people feel stranded in the middle of nowhere where no financial institution steps forward to lend them.
9) One important aspect of maintaining a good score is by self reviewing the score & report, at periodic intervals. You can not only get your free CIBIL report from CIBIL, but also one free credit report from other three bureaus every year.
In reality having a good credit score is truly the key that unlocks several doors for you. Treating the "hype" as a myth would mean trivialising credit scores, which would be wrong by all means.