Credit Score

Credit scores range between figures of 300-900 with the higher scores signifying better grade of creditworthiness.  A credit score is the indicator which conveys to your lender the probability of you defaulting your next loan/credit card outstanding bill.  With a good score, the lender will know that you are a creditworthy borrower.  

We Indians are fond of gold. Not only does gold hold investment value, culturally we show an affinity towards gold. In fact, a study by the World Gold Council in 2017 revealed that Indians households, form the world’s largest hoarders of gold, holding a record 23,000-24,000 tonnes of the precious metal, worth at least $800 billion. Though the fancy for this metal has decreased after demonetization, gold still holds a strong place here.  

We study history to understand and learn from our past so that we can improve our future. Similarly, credit history has a bearing on our present and future. All our actions in the past concerning our credit behavior are recorded and presented as a three-digit number ranging between 300-900. This is the credit score.  We are aware that higher the number, better the credit score is.

There are increasing instances of individuals with good credit score getting benefitted with better deals on loans and credit cards. For instance: ICICI Bank has started using a curated algorithm to pre-approve 100% on-the-road car loan financing for its customers who are creditworthy. SBI charges a lower percentage of interest on its loans for individuals with good credit score. Therefore, the importance of a good credit score cannot be overemphasized.  

Personal Loan is an unsecured credit and one of the easiest loans to apply. It does not need exhaustive documentation like Home loans. Moreover, personal loans can be put to use to meet any need, like taking a vacation abroad, meeting a medical emergency, as a down-payment for a home loan, or even for a wedding.  The terms and conditions of a personal loan are also easier and simpler to understand. 

Just like Permanent Account Number (PAN) forms your identity while carrying out any financial transactions, a credit score acts as your identity in the world of credit. Your PAN is required undoubtedly, but your credit score assumes more importance here. 

The importance of credit score is known to all of us. Maintaining a good credit score is advantageous in a multitude of ways, like better chances of getting a loan/credit card approved at favorable terms, improved negotiation power, increased probability of getting higher amounts of loan, etc. 

Credit score has become an integral part of our financial well-being. To be eligible for any kind of credit, a good credit score is essential. But we are humans and it is natural for us to make mistakes. Sometimes, that might cost us our credit score. Once we get into the territory of bad credit scores, getting further credit on the best terms gets increasingly difficult.  

With increasing needs and consumerism, we all wish to buy fancy vehicles, luxurious homes, get a degree abroad and much more. But sadly, not everything is within our reach, hence we need credit in the form of a home loan, vehicle loan or even obtaining a credit card. Credit score has become as essential as a PAN number or a mobile number. 

Credit Utilization ratio is one of the main components of a credit score. Your earlier score would have been calculated as per your existing credit utilization ratio. However, if there has been a consistent increase in your credit utilization ratio your credit score would have dropped down. Higher utilization is an indicator of poor credit habits.  

Your credit score is aggregated from the data provided in the credit report. It is the outcome of your credit behaviour. The lenders periodically pass on your credit information to the credit bureaus. As human work is involved while reporting the credit data, the chances are high for errors to occur. When there is an error, it can even be related to any one of the criteria that affect your credit score

Are you among those who check for updates on your WhatsApp, Facebook or any other social media account often? This often becomes obsessive. Going along the same lines, Ankush Tiwari, an architect from Hyderabad loved checking his credit score. He was happy that he did not have to pay for the scores anymore and checked his credit score online

For many of us, credit score may seem like a nonconsequential thing. There are some of us who have not even heard of credit scores and there are some who know something about credit scores but do not think it is important enough. For all those and many others who think that credit score is not important, we beg to differ.  

Do you remember when you checked your credit score for the first time? It must have been a joyous feeling of getting introduced to the credit world. Since checking your credit score, everyone would have a determined mind to increase the credit score. But over the period, things could have turned bad and a financial crunch would have been unavoidable.

As individuals, we need credit scores for obtaining any kind of credit. Have you ever wondered if the same applies to companies as well? There are many companies in the market who keep issuing bonds, debentures, accept fixed deposits and another kind of financial instruments.

There are four credit bureaus that provide an individual’s credit score and credit rating. Just as we have personal credit score, there is separate credit rating for all business credit. To avail a business loan, the creditworthiness of the business is checked by the business credit health.  

You can get your credit score directly from these bureaus or you can get your credit score from companies who have tie-ups with the credit bureaus and provide you your credit score instantly. The RBI has stipulated that all the credit bureaus need to provide 1 credit report for every individual for free each year.

The self-employed do not have it so easy. But many banks these days offer credit cards against a fixed deposit.  The credit limit is often the same or little lesser than the fixed deposit.  You could also opt for a prepaid credit card. When you repay the outstanding against these cards, the same is reflected on your credit history and the result is increasing credit score.

Close to a million Indians join the workforce every year, not all are lucky to get jobs; but even those who do, run the risk of getting rejected on loans and credit cards due to a lack of information on credit score. Statistics say that 50% of the loan applications get rejected due to lack of credit score.

In India, banks consider a score of 700 and above a good credit score. The ideal score is one above 750. So, if you are looking to negotiate good terms on your loan it is best to have a score above 750. On the other hand, any score below 650 would attract a higher interest rate. Banks will take a stand and not negotiate to reduce the interest rate.

Most lenders offer credit cards against a fixed deposit account. You will be allotted up to 75% of value of the fixed deposit as credit limit on your card. Later on, with judicious usage and consistent bill payment, you can step up your credit limit. But when you default on your payment, the lender will use the fixed deposit as the security. The secured credit cards on regular and prudent use would help the user build up considerable credit history for the future.