Want loan without hassle? Check your credit score annually

A credit score is the most important factor to be a creditworthy person. So, if you have a good credit score, i.e. more than 730 or 740 then you will get a low interest rate for your loan and easily get multiple credit cards. The best way of understanding your credit eligibility and position is to check your credit report and credit score frequently. But how does an Individual know his/her credit score and where can he/she check it from? There are three credit bureaus operating in India – CIBIL, Experian and Equifax. You can check your credit score once every year free of cost or against a nominal cost.

Credit score

A credit score is a measure of an individual’s ability to pay back a loan amount. It is the numerical representation of their creditworthiness.

A credit score is a 3-digit number that falls in the range between 300 (the lowest) and 900 (the highest).

While computing credit score, several factors such as length of credit history, repayment records, credit inquiries etc. are taken into account.

Any person having a credit score above 620-630 is fair enough. But to get a loan quickly sanctioned at low interest rate or have a credit card quickly issued, the score must be between 720 and 900.

Here are main four reasons why you should check your credit score at least once a year.

1. Know your position

Just like regular medical check-ups, regularly checking your credit score is important for your financial well-being and creditworthiness.

If you have a good credit score, then you will get lower interest rates on car loans, personal loans and even on home loans. Besides, banks can issue credit cards and your credit limits would be much higher.

But if your score is low, it’s important that you keep an eye on it and take remedial measures. If you have a score of above 800 then it would be wonderful. On the other hand, a score of less than 650 would make your loan request a bit tricky.

2. Easy loan approval

Banks always give first priority to his/her application whose credit score is above 750. If you check your score once a year you can figure out what is going wrong.

If you know your credit score well, all your future loan applications would pass fast without facing tough questions from the banks or the lenders.

3. Credit utilisation ratio

The credit utilization ratio is the proportion of credit limit utilised regularly by you against the total credit limit available. As lenders usually prefer lending to credit card users maintaining CUR within a maximum of 30%-35%, breaching this mark can lower your credit score.

In case you tend to frequently breach this 30%-35% mark, consider either opting for an additional credit card or, else request your lender for credit limit enhancement. But you must keep that ratio not more than 35% in a month.

4. Detect any error

Credit bureaus generally create credit reports based on the data provided by your credit card issuer and lender. Any error on the part of the credit bureau or lender might result in an incorrect score. Such inaccurate data can negatively affect your credit score, and it would impact your future eligibility for taking a loan.

If you periodically check your credit score, you can detect errors, if any. And then you can also rectify it.

How is it calculated?

Generally, credit agencies calculate the score depending on multiple criteria of the applicant. There are five main factors evaluated when calculating a credit score. They are – payment history, the total amount owed, length of credit history and types of credit and issuance of new credit.

Payment history contributes 35% of a credit score and shows whether a person meets repayment obligations on time. The total amount owed counts for 30% and the length of credit history has a 15% contribution to calculate the score.

The last two factors have 10% weightage each to calculate the total score of a person.