Credit is essential to aid many activities in life, as savings might not be enough to meet each and every need. Through credit, you can not only buy bigger assets like a home or vehicle but easily pay in installments without hurting your day to day finances.
As it is important to undergo regular medical checkups to maintain your health, so is monitoring of your credit for your credit health.
It is easy to understand how to monitor your health through health checkups, but are you wondering about how to monitor your credit?
Don't you worry! We at CreditMantri have you covered on matters relating to credit. Through this article of ours, we will try to convey pointers on what is credit monitoring and how do your monitor your credit.
What is Credit Monitoring?
Credit Monitoring is nothing but tracking changes in your credit behavior through your credit score and making changes as required in your credit behavior to ensure that you are creditworthy all through.
In many developed countries like the US, there are separate agencies who take up the task of monitoring credit of others called Credit Monitoring Services. These agencies are primarily engaged to safeguard individuals against identity theft when a person’s financial and/ or personal information is misused by someone else to commit fraud
They inform their clients whenever there is any change in the credit behavior like opening of new credit accounts or if there is a hard inquiry. In addition, they also actively engage with their clients and inform them of their credit quality and help them plan accordingly before availing any kind of credit like cards or loans.
In absence of any such service in India, individuals should take up the activities of credit monitoring to ensure all is well with their credit history and that they remain creditworthy at all times.
Importance of Credit Score
As you know, your creditworthiness is expressed through a credit score which is assigned by the credit bureaus based on data provided by lenders about your credit activities.
A graphical representation of the entire chain is represented below for your easier understanding
The Credit Score assigned by the Credit Bureaus is in the range of 300-900 with higher scores representing higher levels of creditworthiness. As lending is a risky business, credit score helps lenders make a sound decision.
Use of credit score and its increased popularity can be attributed as one of the reasons for big increase in retail loans portfolio of the Indian banks from 18.3 % of their total loan book in 2013 to 25.5% in Oct 2018. For many of the established banks, retail loans formed more than half of their total loan portfolio.
Advantages of Credit Monitoring
A good credit score is a precursor for any kind of credit. Unless you demonstrate that you are responsible with credit, there is a minimal chance of you getting any form of credit. A credit score of 750 or above is generally preferred when you apply for any kind of credit.
As an individual, how can you make sure that you are always in control of what happens with your credit score? It is possible by actively monitoring your credit score.
A credit score can be actively monitored by checking your credit score and credit report at frequent intervals so that you are aware of any activity related to your credit which might not have been authorized by you. In addition to this, there are numerous benefits of regularly monitoring your credit score. Some of them are:
Gives you an idea of how you are placed on the credit score scale
Allows you time to improve you credit score, if needed
Lets you spot errors or any frauds quickly enough to take action against
Lets you be well prepared before approaching a lender for loans or any form of credit
In case of good a credit score, gives you an upper hand to negotiate with lenders for better terms on loans
Additional Reading: Advantages of a Good Credit Score
How Do You Monitor Your Credit?
As we read from the paragraphs above, the advantages of monitoring your credit are numerous. But the question remains- how can an individual take charge of their credit monitoring?
We will tell you how.
Check Your Credit Score Regularly
Since there is no service that can monitor your credit score on your behalf, the best alternative is to do it yourself. Credit score is no more elusive as it was earlier. During the initial years of credit score assignment, it could be accessed only by the banks and individuals had no clue of where they stood.
However, with RBI mandate, this quickly changed. Now individuals have access to their credit score and credit report directly from the credit bureau free of cost once a year. So you could have a look at your credit score with the associated credit reported at the websites or through apps of any of the credit bureaus, i.e. Equifax, TransUnion CIBIL™, Experian or CRIF High Mark.
Additional Reading: Learn more about the credit bureaus in India
But it is good to know that your credit score may vary with the credit bureau as each bureau follows its own method for attaching weights to various aspects of the credit score and calculation of the same. So you should ideally check your score from the same bureau each year.
On the other hand, you could also check your credit score with many of the fintech companies like us free of cost any number of times. And you could also be glad to learn that checking your own credit score is not considered as a Hard Enquiry and does not go against your credit score. You can check your credit score as often as you wish with us.
If you find your credit score low, you could also contact us for our credit improvement service, through which we will provide you concrete and implementable measures and hand hold you through your journey towards higher credit score.
We would advise you to check your credit score at least once in a period of 3-6 months to make sure that any change in the credit score is due to your own credit action and not due to any fraudulent activity or errors on your credit report.
By actively monitoring your credit, you can make sure your credit score is a result of only your credit activity and also take required steps to improve your credit score, as needed.