Keep this score healthy, will be handy in needy times

If you are also taking a loan, then the bank will definitely check your credit score, commonly known as Cibil score. A good credit score gives leverage in case of a loan. Be it a personal loan, credit card or home loan, everywhere the bank or finance company verifies the credit score.  How can you improve the credit score. Before that, let’s find out how the credit score is calculated?

Credit bureaus like TransUnion CIBIL collect information about your transactions related to loans and credit cards. These bureaus then share the information with banks and other financial institutions. Based on this information,  credit report and CIBIL score are prepared. When you apply for a loan, the bank asks for your credit report and score from the credit bureau. The bank uses these documents to assess whether you can repay the loan or not. This gives the bank an idea of your financial situation.

The credit score ranges between 300 and 900. The closer your credit score is to 900, the higher is your chances of getting loan approval. Generally, a credit score above 750 is considered good. A score between 550 and 750 is considered average, while a score below 550 is considered bad. It is termed as low credit score. If the credit score is bad, banks may refuse to sanction loan or may charge a higher interest rate. In addition to the credit score, there are many other factors that are considered as loan.

How is it calculated
The calculation of CIBIL Score depends on several factors such as how is your repayment history? Do you pay EMI or credit card payment on time or not? The second is credit utilization.  Credit utilization means how much of the credit card limit you use?  The more you use the credit card, the higher will be the Credit Utilization Ratio or (CUR). This shows that you have no control over your spending. If you make too many inquiries or applications for loans, it will also affect the CIBIL Score.

You can improve your CIBIL score by maintaining a good credit history. For this, you will have to follow some steps. You should pay EMI of loan or payment of credit card on time. Late payment has a negative impact. Use credit limit carefully. Keep Credit Utilisation below 30% of credit limit. Avoid applying for multiple loans at the same time. Apply only when it is very necessary. Keep balance between secured loans like home loan, auto loan and unsecured loans like personal loan or credit card. Having more unsecured loans is considered negative.

If you are a guarantor, co- borrower or joint account holder in a loan account, you should keep an eye on it. If your partner misses a payment, you will also be equally responsible. His carelessness can affect your ability to borrow.

Check your CIBIL score and credit report from time to time.  Checking your CIBIL score repeatedly will not affect your credit score. However, if a bank or financial institution checks your credit report, it is considered a ‘hard inquiry’.

A good credit score is beneficial in many ways. It increases the chances of loan approval. Attractive rates can be obtained on loans if credit score is good or excellent. You will be in a position to negotiate well with the bank or NBFC for loan. Not only this, attention will also be given in the case of pre-approved loans and credit cards. Avoid loan settlement and try to close it by making full payment.  If you keep your credit score good, like Rahul, you will not have to worry about money during emergency.