Keep your finances in order or a bad credit score can jeopardise future loans

Credit score is a report card of your financial behaviour. How have you been with the repayment of your credits like loan and credit card dues? Did you skip any payment? Was there a delay in any your EMI payment? On the basis of these information,  a conusmer’s monthly credit report is generated which includes a credit score. This credit is of utmost importance when you apply for a new loan or a card. The first thing that a lender looks at before processing any loan request is the credit worthiness of the borrower.

What is Credit Score?

Credit score is a 3 digit number, ranging from 300-900. The closer you are to 900,  better are chances of loan approval. Credit score gives an idea to the lender about your past financial behaviour.

What does score mean?

-300-549 – Poor

– 550 to 649- Fair

-650-749- Good/

750-900- Excellent

Radhika Binani, Chief Product Officer , Paisabazaar.com says,’ Many lenders practice risk-based pricing while setting lending rates and since applicants with higher credit scores reflect lower risk of credit default, lenders usually extend loans on lower interest rates to them. In case of applicants with lower credit scores, lenders compensate for the higher credit risk by charging a higher interest rate.’

A good credit score can get you a reward by a waiver or reduction of processing fee.

Factors affecting your credit score

The factors that is considered while calculating the credit score are and what should you take care-

• Repayment history- Have you been paying back in time or not?
• Credit Utilisation- Do you  exhaust the credit card limit too often? This will make you look like a credit hungry consumer.
• Credit Mix- Is there a balance between secured and unsecured loans in your portfolio or not? Too many ongoing loans can hurt your profile.
• Credit enquiries- Have you been thinking of applying for a loan making constant enquiries? This will not reflect well on your financial reputation.

How to get your credit score?

There are 4 Credit Information Companies or Credit bureaus who furnish the score- Transunion CIBIL, Experian, CRIF HighMark and Equifax. These credit bureaus are licensed by Reserve Bank of India. You can visit their website to get your credit score. One crdit score in a year is free and if you want more than its charged between Rs 400 to 500. You can get your credit score from your bank as well.

How to improve your credit score?

Radhika Binani, Chief Product Officer , Paisabazaar.com says, ‘One can improve their credit score by adopting a consistent and timely repayment strategy for clearing off your bills and EMIs by the due date, restrict credit utilization ratio within 30%,regularly checking any guaranteed or co-signed loans, and maintaining a balanced credit mix of unsecured and secured loans.’

You should be taking care of just not your loans but be wary of loans in which you are co-guarantor/applicant. Even if loan is not in your name you need to be sure that the primary borrower does not default or else it will impact your credit score.

Credit score trivia

Credit score are also popularly called CIBIL score. But the the fact is that CIBIL was the name of the first credit bureau company which started bringing credit report and the name became synonymous with that. Transunion CIBIL is one of the credit rating agencies which furnishes credit reports.