Does winning a Lottery affect My Credit Score

Winning a lottery is like a dream come true. If you are one of those lucky few who have won lakhs or crores of rupees in a lottery, you may be wondering its impact on your life. Well, just having the money will not put an end to all your financial woes. How you put it to use is what determines its effect on your financial life. Does winning a lottery affect your CIBIL rating in any way? Let’s find out.

Correlation between credit score and wealth

The income level of an individual or his bank balance has no effect on his credit score. People with a high net worth may not necessarily have a high credit score. The credit score calculation primarily factors in one’s payment history and credit card usage behaviour. So even if a person has a huge bank balance, he will not have a good CIBIL rating unless he makes timely payment of his loan EMIs and credit card bills.

The wealth of an individual may be taken into account when a person seeks approval of a loan application. Banks do check an individual’s bank balance and income level apart from the credit score to determine whether the person has the capacity to repay the loan. Hence winning a lottery may increase your ability to seek loan approvals.

Here is how you can use the money to improve CIBIL score

Though winning a lottery does not have a direct impact on your CIBIL rating, it does give you an opportunity to raise your score by other means. Here is what you can do with the money to improve CIBIL score.

  1. Pay back outstanding dues

If you were unable to clear your outstanding dues in the past because of lack of funds, you would surely have a bad credit history. Late payments, collections, charge offs and other such negative remarks brings down one’s CIBIL rating. Now is the time to put your money to good use. Contact the bank and discuss that you have sufficient money to repay them. Request them to remove your name from the bank’s loan defaulter’s list. Negotiate with them if they can remove negative remarks from the credit report if you clear all past debts.

  1. Reduce credit utilization ratio

Credit utilization ratio plays an important role in CIBIL score calculation. A high utilization shows an over dependence on credit and reduces your credit score. By using the funds to pay off your credit card outstanding balances you can reduce this utilization ratio and work towards improving your credit score. Make sure you do not use more than 30% of your available credit limit. Keeping low utilization levels helps boost CIBIL rating.

  1. Exhibit good credit behaviour

Since you have sufficient money in your bank account, make sure you pay all your bills and EMIs on time. By exhibiting responsible behaviour and making on time payments one can build positive credit history.

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What is the Meaning behind Your Credit Score Range?

There is sense of comfort and satisfaction when you know that your credit score falls within the top range. However, what’s the top range exactly? How does it affect your creditworthiness?

A lot of people are unaware of the different types of credit score ranges and how they affect your credit profile.

Taking the CIBIL score range as an example for this post, we will take a look at the different ranges that fall within its entire spectrum.

CIBIL Score Groups

CIBIL scores on a scale of 300 and 900. So, a score of 300 will be the lowest, and 900 the highest. This range is divided into small groups:

750-900

If your score is above 750 then you won’t have any trouble in securing a personal loan, home loan, etc. with a bank of your choice. You can also easily get attractive interest rates with a score in this group.

Most of the people whose scores fall this in this category have three common habits:

  • They always pay their credit card bills and EMIs on time.
  • They have multiple credit cards but their credit utilization is low. So, if their credit card limit is Rs. 5 lakhs, they will use less than Rs. 1 lakh of the same.
  • They don’t close their oldest bank accounts and try not to open new ones

600-749

If your score falls under this range, then you can consider your score “good” but not excellent. What it means is that you are a responsible credit user and know how to manage your money. You try to pay your bills on time but may occasionally be late for a payment or two.

500-600

Any score between 500-600 is a fair score. So, although it’s not a low CIBIL score, it’s not good either. From the perspective of your creditworthiness, you shouldn’t be happy with a score in this group.

Although you can apply for a loan with a “fair” score, it’s not recommended. This is because there is still a good chance of facing rejection. If you apply for a loan multiple times in a short period, then it can actually damage your score further. So, what you should ideally do is work on the score first. Once you have moved from a “fair” score to at least “good”, you can apply for the loan. Not only now you will be able to easily secure it, you can also try to get lower interest rates and more comfortable terms and conditions.

Below 500

A CIBIL score below 500 is considered a low CIBIL score, or rather a “poor” CIBIL score. As you can expect, this means that you will only have problems such as:

  • Obtaining any kind of loan itself can become extremely challenging. Even if you are able to convince a lender to overlook the score, you will have to pay a high interest rate that will make the proposition not worth it.
  • As many finance companies have started screening the job applications on the basis of the credit score as one factor among many, you can have a tough time securing a job too.
  • A poor score means that you will be under high stress and financial insecurity.

0 Credit Score

If your credit report shows “0” credit score, then it’s natural to be worried. However, there is no reason for that because, in most credit reports “0” doesn’t signify the lowest score, but rather than the lack of credit history. In other words- if you have never taken credit in any form, such as credit cards, loans, etc. in your life, it means there is no credit information available, and hence no credit score yet. Once you are under any kind of debt, your lender will submit the information to the credit rating agency and your credit report will be created.

Meaning of Credit Score Range

By matching your credit score with the different groups given above you can easily self-assess your creditworthiness. If your score is poor or even just “fair”, it’s best if you can take it up a notch. This is because your credit report is extremely important, and you should try to keep it in a good condition.

How to Decode One’s Credit Score

The credit score of an individual is increasingly gaining importance in the financial world. It is a measure of the person’s past ability to make timely repayments and effectively manage credit. It is necessary to maintain a strong credit history if one wishes to secure loans. Despite being such an important measure, many people have several confusions with regard to this number. Let us decode what this score is. Here you will find all you need to know about this three digit magical number.

Why is credit score so important?

Even though numerous banks and financial institutions as well as private lenders offer loans for various purposes, it is not so easy to secure loans. The CIBIL score is used by most lending institutions to assess the credit health of an individual before granting credit. Lenders want to be sure of the repayment capacity as well as the intention of the borrower before disbursing the funds. A good CIBIL score is an indicator of good financial health and responsible credit behaviour. While a bad score indicates that the person may default in future. Hence having a good CIBIL score provides easy access to loans. The rate of interest also factors in the borrower’s credit score. A low score increases the risk exposure of the lenders, who then charge a high rate of interest to cover for that risk.

It is also beneficial to have a good CIBIL score when you are applying to jobs in banking and finance sectors. That is because employers feel that a financially disciplined employee will work diligently as well. Hence you may be asked to submit your credit report or score when you apply for jobs. Some insurance companies take your credit score into account while setting the premium. Many landlords too check your score to see whether you have a stable financial history.

What determines your credit score?

The information recorded in your credit report goes on to determine what your score will be. There are 5 main influencers that compose the score. Past repayment track record is the most crucial component among them that accounts for 35% of the score. The utilization ratio on credit cards, average age of accounts, mix of credit and the number of hard enquiries that are made when you apply for new credit are the other factors that contribute to the score. Factors like your age, nationality, marital status, location of address, salary, employment history do not affect the credit score in any way.

Making the EMI payments and credit card bill payments on time greatly helps to improve CIBIL score. Keeping the credit utilization percentage low(that is the balance outstanding on the credit cards as a percentage of the total credit limit sanctioned to you), having a healthy mix of both secured and unsecured credit lines, and applying for new credit sparingly are other ways in which one can improve CIBIL score.

What score is a good score?

A CIBIL score between 750 to 900 will put you in an advantageous position. It is a clear indicator that you have a sound financial condition and you have handled all your past obligations responsibly. Since your chances of default are almost nil in this case, banks will readily offer loans at reasonable interest rates. You can shop around and demand the best rates possible. A score less than 600 puts you in the category of a subprime borrower. It may result in an outright rejection of your loan application. An average score between 600 and 750 gives you limited options. You will be required to pay a premium on interest rates in order to secure an approval. But if you work to improve CIBIL score, and start making timely payments you can surely see your score rising in few months time.

How should I keep track of my credit score?

You can order for your score from any one of the three credit bureaus online. As a practice, check your CIBIL score once every year. If you plan to apply for a new loan in the near future, then check your score at least 6 months prior, to ensure that it is good enough to secure an approval. If your score is low, you will have sufficient time to work on it and improve CIBIL score.

The Credit Report You Haven’t Seen Yet, May Scare you

People who are careful about their physical health usually go in for an annual health check-up, just to make sure that everything is fine. Similarly people who take their financial health seriously should keep an eye on their credit score and report on a regular basis. Your credit report shows a complete record of all the credit accounts. Your credit score is calculated based on the information in credit report. Depending on how you manage your credit and how you handle the payments the credit score determines whether you are a worthy borrower. Checking your free CIBIL report every year helps in keeping your financial life in order. It helps in making sure that all information recorded about you is true and up to date. It helps in uncovering frauds in a timely fashion before the situation goes out of control.

Many people do not care about credit reports until they find a need for a new loan. Many people just check their report before finalizing a car loan, to see whether their credit profile is strong enough to help them bargain for better interest rates. If you are one such individual who hasn’t paid attention to your credit report till now, you may be in for a big surprise. You may find entries in your report that may give you a shock of your life.

Errors in CIBIL report are quite common these days. Such errors are capable of bringing a huge dip in credit score if not corrected on time. Identity theft cases are already on the rise. If someone is using your name to commit a fraud or if someone is charging credit card expenses in your name you may not even be aware of it until you check your credit report.

Finding out that your credit profile is in a mess at the time when you are seeking out a car loan is quite scary. To avoid such a situation one should regularly order the CIBIL report and check it for accuracy.  Check whether you recognize all the loan accounts and credit card accounts that are opened in your name. Ensure that you recognize the transactions made using credit card. If you spot any accounts in your report that you have not opened, any transactions in the billing statements that do not belong to you, or any collection notices that you do not recognize then it could be an identity theft case that may ruin the credit rating.

Immediately report such cases to the creditors who are reporting the fraudulent information and dispute these errors with the credit bureaus. You may also put a fraud alert to the credit report so that no new accounts are opened in your name. Follow up with the bureau till the item is removed from the report.

You should even get small errors like misspell name or address rectified. Such small errors, if not rectified on time, may become a reason for a bigger problem later on. If you want to protect your financial life you should take the complete onus of ensuring that your report is showing true and correct information. To get the errors fixed you can submit a dispute to the credit bureau through email. The bureau will contact the original source of information to verify the details. You may even send supporting document as proof to both the bureau and the creditor to speed up the process.

Apart from errors, even true information in the credit report might take you in for a surprise. Many a times, it is only when you see your credit report and analyse the factors that are bringing your score down do you realize your mistakes that you’ve been doing in the past.  A review of correct information like late payments helps in realizing that small mistakes can prove disastrous for the credit score.

With millions of consumer records being processed every day, errors in credit reports are bound to happen. If you want to avoid unpleasant surprises at the time you need your score to be at its best during loan approvals, monitor the report on a regular basis. It will help you uncover problems before they become difficult to manage. Order your free CIBIL report today.

3 Ways Parents Could Accidentally Harm Their Child’s Credit

Credit health is as important as your mental or physical health. However many a times we realize the significance of credit health only when it is hurt. A low credit score hurts your credit worth and makes you ineligible to advance the loans.

Let’s find out some of the common mistakes which hurt the score in the beginning of credit building cycle of an individual. Herein we would focus on 3 ways parents accidentally harm their children’s credit report.

  1. Multiple Student Loans
    The escalating costs of school and college fee is one of the major reasons why student loans are as much a fad as a necessity for young aspirants. The parents who fail to incur adequate research on the matter and avail a high cost loan for the purpose, certainly build a huge financial burden right in the beginning of their child’s credit life cycle.

    Many people mindlessly raise multiple loans for students owing to availability of credit facility at lower rate. With enormous amount of debt it would be a huge responsibility for a student to repay a loan after completing their education. As a parent, it is your duty to calculate total fee amount and try to look for the least expensive way to finance your child’s education.

    You also need to build the healthy habit of saving funds in your child. As a parent, it boils down on you to inculcate good financial habits in your child. Raising too much of loan for their education would not be a smart decision if it results in low CIBIL score.

  2. Share your credit cards
    Excessive spending is another key reason for impending balance on credit cards. Before handing over a credit card to a young mind, it is important to help them understand the importance of not having huge balance at the end of every month.

    Being a parent you can also add the kid as your credit card account holder. It will sometimes help them to improve their CIBIL score. But maintaining good credit behaviour would be a must. As an adult you need to ensure that regular payments are processed on time and there is no balance after the due date. Remember your child is most likely to follow your footsteps. If you are not serious about repaying your bills on time, the child is also not likely to pay attention to deadlines. You would seriously challenge your child’s future with bad credit habits.

  3. Credit education
    If you fail to teach right knowledge about finances and credit to your child it is your failure as a parent. You need to make the young mind understand the important aspects related to money management and ways to improve CIBIL score. The first credit lesson starts from home. You need to make the child understand how credit affects their life. You need to make them understand the importance of credit for their education, job to buying a home or car.

You need to teach them how important it is to monitor their credit score multiple times in a year. It is important to let them know how information in their credit report will impact their credit score.

Educate them about the available resources to obtain a free annual report. You can choose to review it along with them so that they learn the intricacies of maintaining a good score. You need to help your child develop a mindset that it is easier to maintain credit health rather than fixing bad history later on.

Last but not the least, do not forget to talk about identity theft threats. For online it is one of the fastest-growing crimes. They should know that sensitive information related to account should not be shared with anyone outside.

The 4 Things That Affect Your Credit Score

It’s foolhardy to underestimate the significance of CIBIL score. You might be earning a sizeable income and have multiple assets to your name, but if your CIBIL score is not up to the mark, you can lose the very chance of obtaining a personal loan, home loan, or rather any other type of credit from a bank.

Fortunately, it’s never too late to start caring about your CIBIL score calculation. So, if you want to become more careful with your credit usage, it can help to learn about the top 4 things that affect your CIBIL score:

  1. Payment History

Late payments are often the biggest reason behind a low CIBIL score. These include credit card bills, loan EMIs, etc.

When you don’t pay your credit card bills, etc. on time, it reflects irresponsibility towards money management. Moreover, it shows that you can’t be trusted with credit. Thus, credit rating companies such as CIBIL, Equifax, etc. can deduct a large number of points from your score.

If you want to increase credit score in the fastest way possible, then just start paying your bills on time. Set up reminders on your phone if need be, but make sure that you don’t delay a single payment ever.

  1. High Credit Utilization

Credit utilization plays a big role in CIBIL score calculation, but what’s it exactly?

Credit utilization is the ratio of the amount of credit you spend every month on average to the amount of total credit available to you.

For instance, if you have 2 credit cards, with Rs. 50,000 credit limit on each, then the total credit available becomes Rs. 1 lakh. Now, if your monthly expenditure with the cards is about Rs. 60,000, then the credit utilization ratio becomes:

60,000/100,000 = 0.60 = 60%

If your credit utilization ratio is high, then it can have a negative impact on your score. Although the exact threshold varies from one credit bureau to another, usually it’s around 35% to 40%.

So, by lowering the credit utilization ratio you can increase credit score. The following are two ways you can do that:

  • You can stop using your credit cards frequently. Instead, make payments via mobile wallets, net banking, or even cash.
  • Get a new credit card so that the overall limit is increased and the credit utilization ratio is lowered.
  1. Credit Report Discrepancies

When was the last time you checked your CIBIL report? If there are any mistakes in your personal details, banking data, etc. in your report then it can affect your CIBIL score calculation.

To make sure that your CIBIL report doesn’t damage your credit score, it’s important that you go through an updated copy every now and then. The following are some of the things you should look for: unfamiliar credit card/loan accounts; discrepancies in payment history, personal details, etc.; and false tags such as “settled account”, “defaulting”, etc.

  1. Too Many Loan Requests

When you need a personal loan or a home loan on an urgent basis, then it’s natural to assume that submitting multiple applications to multiple banks can greatly increase your odds of getting an approval from at least one lender. However, nothing can be further from the truth.

When you send out the loan applications at the same time, credit bureaus sense an urgency in this behavior which is not good from the lender’s perspective. Thus, your score could take some damage by this.

In other words, rather than increasing the possibility of you getting a loan, sending multiple loan applications around the same time, can, in fact, lower your odds even further.

If you really want to make sure that you get a loan in the first few attempts, then you must check your CIBIL report first. If it’s all good, you can get a loan without a problem. If it’s not, then you can improve it first, and apply for the loan only after that.

So, these were the most common things that can affect your CIBIL score. Be sure to adjust your credit behavior accordingly so that no only you can prevent your score from any damage, but rather increase it even further.

Length of Credit History vs. Late Payment History, where do you stand?

All of us would have had history as a subject in school. And many of us would also have cribbed about why to learn about something that has gone past. However, the fact is that history is something that all of us have a lot to learn from. We can improve our present by reviewing our past. Goes without saying that our present is an outcome of our actions in past and studying our past does help us in taking better decisions at present.

You must be wondering how is this related to your credit profile. It indeed is. There are two important historical trends that make or break your credit score. In fact these two have the potential to either put you at a position where you are able to save lakhs of rupees or can become part of the loan defaulter list. The two important historical trends that we are referring to here are “length of credit history” and “late payment history”. Let us look at these two important aspects and how do they impact your credibility.

Length of credit history

The length of your credit history means that how long you have been holding a trade line. This is one of the most important aspect reflecting on your credit report that makes your healthier on credit front.

To explain it better, let me put you in a situation. Two known people approach you for Rs 10,000 each. One of them has been known to you for a few years now and you are aware of his history of borrowing money  few times and also about his commitment to repay as soon as the salary gets credited. The other one is a new acquaintance who has joined office about 2 months back and you do not have much awareness about his past. Who would you be comfortable in lending your hard earned money? I am sure your answer would have been the first one.

Similarly the length of credit history reflecting on your CIBIL report helps in establishing a comforting factor with the underwriter of the lending institution. A person who has enjoyed credit facilities from various banks for years v/s a person who is new to credit makes a lot of difference in the process of evaluation.

But the loans keep getting closed over a period. The fact also remains that you would want to pre-close it in case you have some funds available with you. So how to manage the length of credit history? Do not close that old credit card that you may feel has become obsolete in terms of its features. Continuing with that credit card will only help in keeping your credit scores healthy.

Late payment history

While the underwriter evaluates your loan application, the way you have managed your credit in past becomes the single most important factor that can lead to approval or rejection of the application. How have you faired against the payments would lead to impacting the outcome.

Again referring to the above example, if the first person who you had known for a few years had only paid other friends after some follow up or has had defaulted on even one friend’s loan (while paying the others in time) you would be skeptical on extending him with financial help. Just like you, even the structured lending institution would be apprehensive of giving a line of credit to an individual who has had default reflecting on the bureau report. Thus it becomes very important that all loans and credit card payments are happening in time without any delay.

Your length of credit and your repayment history are the two most important pillars of your credit profile and must be maintained. In the absence one may not have access to funding at the time of need.

Is a ‘Perfect’ Credit Score Even Possible? Or It’s a Myth?

The credit score is globally accepted as a signpost to a person’s credit worth. Banks and financial institutions consider this three digit number as a hallmark of your repayment capability. They gauge the risk factor associated with each loan application considering the credit score of the applicant.

In India CIBIL score is primarily considered as the benchmark of a person’s credit score. Credit Information Bureau of India and TransUnion CIBIL Limited are some of the other names of CIBIL which is the premium credit agency of India. It is country’s first credit bureau which modeled a systematic credit scoring system for banks and financial systems.

The CIBIL score is calculated between 300 to 900 points, wherein 900 is the perfect score while 300 is the lowest score. The more closer an individual or a business is to 900 CIBIL score, the better is their credit worth in the eyes of a lender. According to CIBIL 80 % of people with 750 or above points are granted loans by banks.

It is worthwhile to consider here if a good score a guarantee to loan approval? And for that matter, is it practical to get a perfect credit score such as 900 CIBIL points? Is it even possible to attain the perfection or it is just a myth?

It is not possible to state an absolute calculation on what causes low CIBIL score and why. So, let’s find out what compounds a CIBIL score to reach to point of understanding for this query.

Credit score calculations factor in too many aspects which are not absolute in nature and may vary from person to person. Every individual and business vary in terms of their credit worth and so does the impact of their financial moves.

However we can inscribe 5 common factors that affect credit score calculation globally:

  1. Repayments
    To maintain a good credit score, timely repayment of loans and credit bills is a must criterion. Indeed it is one of the key factors that define the stature of your score. According to CIBIL reports discipline in credit repayment can boost your score by 30 to 35 percent. Thus diligent repayment could be your first step towards the perfect CIBIL score.
  2. Credit utilization ratio
    As important it is to repay on time as is to keep a check on your credit accounts. You should always ensure that you do not overuse the credit limit offered to you. Those who exhaust their limit every month are less likely to have a good score. Lenders assume that you are short of cash and your financial situation might be not be as sound for a perfect score. So, using more than your credit limit has a negative impact on your credit report. Indeed it is recommended to limit your credit use far below 30% of total approved limit.
  3. Query
    Always ensure that you do not make multiple queries in a small period of time. Every time you make a query for loan or a credit card, it is marked on your credit report. Frequent queries
    on your report signify credit hungry nature and thus make you financially less strong.

 

  1. Credit mix
    Every time you borrow or use a credit product, the lender undertakes a risk. They charge interest rate to cover up this risk. When you borrow against a property or some other collateral the risk is substantially reduced and thus you are offered a better rate of interest. With this said, I hope it is clear why you should maintain a right credit mix of secured and unsecured loans. Too many unsecured loans restrict your score.
  2. Length of credit

The length of credit history also affects the score. The older is the good history the better effect it will have on your credit report. Thus those who have older history are rated better than new borrowers. This is also why when you close an old credit card with good history, it affects your score negatively.

 

Knowing these factors you can ensure a good score during all the seasons of your life. If however you target the perfection, you need to frequently check your credit report and monitor every activity that hurts your score.

3 Strategies to Help You Save Money Now and in the Future

When you are young and just started out in the world, it’s easy to think that money is nothing and spend what you earn. Have you ever given a thought that saving money will not only help you build a secure future but also will add supplement when you make huge plans for life. In this decade we are living in, we are surrounded by a lot of unwanted things and the temptation to have them all. What we do not understand is we are spending a fortune on luxury without giving a thought on the future. These practices lead to bankruptcy and result to taking a loan and if you do not pay your EMIs on time your credit score will go for a toss. Do you know your cibil score calculation? And if you don’t, then steps to enhance your credit score?

How does the temptation to buy or spend on luxury things rises? In every group there will be friend who buys the latest IPhone every year and flaunts it whenever you meet. It gives you a thought, should I buy the same phone to live up to my friend’s standards and end up buying a similar phone. What you do not realize is that, just for sake of status you spent a fortune on a phone which will prove worthless after a year when a new model releases and then you will be going after that phone as well.

Just to avoid such perceptive buying and spending, today we will be sharing you three best strategies to lower your expenses and save for a better future,

Set your priorities straight;

Everyone has their own priorities; the priorities can be of two types and can be categorized into needs and wants. Try understanding your needs over wants, for example buying a car for your commute is a need but buying a Mercedes or a BMW for your commute is a want. You can always cut down on a lot of your wants and start contributing for what your needs are. Make a priority list of things you need with the age when you expect to achieve it. We can set some priority points which are common in everyone’s life and you can start from this,

For emergencies you do not know what can happen at any time, always be prepared for the worse. It can be a broken mobile screen; you lost your job in some company and need at least three months of financial backup, any medical emergencies.

For Education a good education plays a vital role in everyone’s life and where does good education come from? It comes from great educational institution. Instead of opting for an education loan try saving money for the same.

For home buying this is a big step in your life, buying a dream house is no joke, there is a lot of planning and savings involved in the same. If you start saving money from today who knows you may land up in your dream house without hassles of taking home loan.

For retirement after a long innings in your money making life, you will be expecting a comfortable life after retirement so you can save for your retirement and spend the rest of your life in financial peace.

Always plan to save

 We all know nothing is impossible without proper planning; the same goes with financial planning where you are supposed to make plans on savings and track them on a regular basis whether  you are adhering the same.

Build a budget for saving every month is not the same, you may encounter emergencies and you may have to spend your savings but building a budget will not harm you. Build a budget you would like to save from your earnings and stick to it. One tip: try saving in a bank account with no debit card and internet banking so that you do not tempt to use that money for luxury.

Track your expenses after you make a budget track your expenses, where you are spending, how much you are spending. If needed cut some luxury of availing public transport for short distances, go by walk.

Make secured investment these days you can make secured investment like fixed deposits, recurring deposits and so which will guarantee you good returns in short tenure.

Stick to your plan

 It’s just like a new year’s resolution where you promise yourself to get fit this year and workout a good two weeks and after that stop going to the gym and your resolution goes for a toss. If you have made a financial plan stick to it no matter what.

Something is better than nothing is the quote we should stick to, and start saving from today. You do not know what life has for us; it can be sweet pleasures or bitter pain. For such bitter pain be prepared and start saving from today.

Bank Pulling Your Credit Report? Wait, Don’t Freak Out

Unless you seek to borrow funds from your friends or relatives or from a lender who is not a part of the mainstream organized financial structure you cannot circumvent an inquiry into your credit score. Thus whenever an applicant applies for a loan or a new credit card the prospective lender will seek the applicants credit report to assess their credit health and then based on that they will decide whether to accept the application or not. Credit check is not only a part of the screening process used by lenders when assessing potential candidates but it is the first step in that process. So the borrower or an applicant can do nothing about a financial institution seeking their CIR when applying for credit. However is this a cause of worry?

Impact of a Bank Pulling Your Credit Report:

Banks or any other lender seeking the applicant’s report is part of the screening process and is beneficial to both the lender and borrower. Lenders can eliminate applicants who pose a threat of default as may be revealed by their credit score and for the borrower it means a more objective process of screening which is not based on subjective factors. So what happens when a bank pulls the CIR of an individual?

A credit report consists of various sections and each section has information related to that aspect respectively. There is a personal information section which will have details about name, contact details and so on for the person; the accounts details section will have details about home loans, personal loans, auto loans, all credit cards that a person may have and so on while the inquiries section will have details about the inquiries that have been made about the credit score of the individual. Thus which financial institution sought the report of the applicant and when will be recorded in this section.  There are five aspects that are taken into account when the credit score is calculated. Inquiries information is one of the five factors and each inquiry can cause the credit score to fall.

So is there a Cause of Worry?

Despite hard inquiries causing a dip in the credit score there is no reason to worry about it when a bank seeks the CIR. This is due to a couple of reasons; the first reason being that each hard enquiry will cause a dip of only five points or so in the score. The actual impact will depend on some other aspects also; if there are few accounts and the credit history is not very deep then the impact of each hard inquiry will be slightly higher. When there are a larger number of accounts and the credit history is deeper then each inquiry will have a comparatively lesser impact on credit score.

Though hard inquiries are taken into account when calculating the score but their weightage is only 10% thus their actual impact is very less when compared to other aspects like repayment history and credit utilization ratio. Thus if one has been responsible in paying their dues on time in the past and has also been a responsible credit card user their overall score is expected to be good. If there are missed payments, high credit utilization ratio and too many unsecured loans in the credit report then there is not much that can be done. In such a scenario a bank pulling your report will just worsen the score slightly.

So unless one makes reckless applications for loans there should not be a cause of worry.  When calculating the score only inquiries that were made in the past two years are considered which should reduce the stress level for any applicant.

When applying for a loan the applicant should ensure that they check the eligibility criteria of the lender so that they are sure of their application being accepted. Also stay away from applying for a loan or fresh credit unless absolutely necessary, this will save you from unnecessary hard inquiries and any impact on the credit rating.