Banks sanction loans based on multiple factors, and credit history is an important factor. Age, work experience, monthly income, job stability, down payment, collateral, and repayment are some of the other factors.
What Does Your Credit History Show?
Your credit history shows lenders how you have handled credit in the past. It indicates whether you have repaid your EMIs on time in the past. Based on this, banks conclude about how punctual and disciplined you have been with regards to handling finance. Any default or delay in repayment in the past will be examined. The greater the delay, the lower your score will be. Also, a nil credit history does not help much, because the lender does not have any base to evaluate your creditworthiness. So, if you have not availed of any loans or credit cards in the past, you will be at zero credit. Start with taking some small loans and a credit card to build your credit history.
What Is Considered A Good Credit Score?
A credit score in the following ranges indicates as follows:
Credit score Below 500:
Not a good score. Immediate action is required. It will increase the probability of your loan application getting rejected.
Credit score 500 to 600:
Getting a loan will be really hard. Interest rates are on the higher side
Credit score 600 - 700:
fair score but qualifying for better loans will be difficult. You are not in the top tier.
Credit score 700 to 900:
Good score Lenders will be optimistic to lend you credit. This score indicates that you are in the top tier of borrowers and have handled your credit responsibly in the past.
The 4 Credit Bureaus
There are 4 credit bureaus in India - Transunion CIBILTM, Equifax, Experian, and CRIF Highmark. They compile credit reports by gathering information about your credit activities from various data providers. Then, they share this information with creditors, lenders, financial institutions, and consumers. They derive a 3 digit score based on the information. This is called the credit score. All the four credit bureaus in the country are licensed by the Reserve Bank of India (RBI).