Why you need to know about your credit score

If you are a student, how would you feel, if you are denied your academic report? How will you evaluate your performance on various subjects that you are studying? If you are an employee, can you be oblivious to your professional performance?

It is equally important to know your credit performance, the way it is to know your academic and professional performances. A person’s credit performance – means, how they handle loans and credit – is indicated by a three digit number called the ‘credit score’. Credit score appears on the individual’s credit information report and is a reflection of the person’s financial and credit worthiness. Knowing your credit score will tell you whether or not you can seek a new loan or a credit card; allow you to take important decisions regarding your finances; and seek financial help when you really need it. Loans and credit have become an important, indispensable part of common man’s life since they allow people to meet their financial goals and fulfill their dreams. In that case, knowing whether you are loan-worthy or not, means, knowing about your credit score becomes inevitable.

What exactly is this credit score and why is it so important?

Credit score is a three digit number, that shows the financial worth of an individual. In other words, credit score and credit report will let you know if an individual has a good credit behaviour or not; OR, whether the individual is employ-worthy. Credit score is a clear indication of a person’s loan eligibility also. It is computed on the basis of a person’s credit usage and loan re-payment patterns over a period of time. In case of organizations, credit score will let a prospective investor or a business partner judge, if the company is worth investing in or worth partnering with. Knowledge of your own credit score is therefore crucial.


One would be able to manage their credit products better, if they are aware of their credit score. Means, running a credit check will tell them whether the scores are low, average or high. A low score will give them the opportunity to improve credit score and become loan worthy, before they approach a lender. Which means, to a potential lender, your credit score will reflect as good. Whereas, a good score will translate into a good credit health, means, it shows that you are loan worthy [or employ-worthy]. There are several factors apart from a credit score, which impact a loan approval process. But, a credit score is the one that directly impacts majority of credit decisions. In accordance with your credit usage patterns, your credit score may fluctuate.

Knowing your own credit score will also allow you to make timely corrections on flaws or errors before such a factor can turn a potential lender away. So, now you have understood how to know your credit score, and approach a bank or a lender with confidence. Credit score is a crucial factor in all borrowing and lending decisions.

Know how to get free credit score

How to Pay Off your debt faster?

Home loans, car loans, personal loans, all help us enjoy a lifestyle NOW without waiting to accumulate savings and then buying the items. This is a practical solution for many individuals and most manage to pay off their debts in the designated time period thus not affecting their credit rating. In fact a healthy amount of loan and timely repayment actually reflects positively on your Credit Information Report and Credit Score.


Problem occurs, when a person has accumulated more debt than he or she can handle. This happen due to careless financial planning like accumulated debt on credit cards through months of paying only minimum amounts, taking loan to repay another loan etc. At one point it becomes important for the borrower to get out of the debt cycle and fast.  To pay off debt faster and never again get in a situation of debt cycle, a person can take the following steps :

  1. Pay the debt with highest interest rate first. While it is common to mistake the largest sum to be your biggest debt, it is important to note, that more than the principal amount the interest rate is the culprit. Because interest rate defines how fast and how much your debt will grow. Thus when a person has multiple debts to payoff, he or she should make a list of debts in decreasing order of interest rates and payoff the highest interest rate debt first.
  2. Convert payments to EMIs. Instead of accumulating a huge amount on credit card bill and then managing to pay it partially, it is better to convert the amount to EMI. Most credit card companies today provide this facility to convert purchases into EMIs for nominal processing fees.
  3. Plan purchases wisely according to credit card bill cycle. If you time your purchases well, you can enjoy almost 45 – 50 days of interest free period on credit card. But for this you need to know your bill cycle well and time your high value purchase at the beginning of bill cycle thus giving you enough time to save sufficiently for paying the bill on time.
  4. Avail automatic billing facility. Many credit cards can charge you a high late payment fees and per day interest for late payments. You may end up creating payable interest for simply forgetting to pay the bill on time. If you are well aware of your spending and know that you would have sufficient balance on payment due date, it is a good idea to avail the automatic bill payment facility every month to pay your credit card bills.
  5. Check your bills every month. Sometimes credit card companies smartly include miscellaneous charges on your bill that you as a consumer have right to decline unless agreed to. Instead of just checking the total amount and paying it every month, it is a good idea to check the bills in details for such discrepancies.
  6. Do check early payment penalties. Many loan companies charge a certain penalty fees for early loan closures. So if you are planning to save more and finish off that loan as fast as possible, do check such clauses before taking the loan. Because you may end up paying more in penalty than you would have paid as interest normally.

    Defaulting on debts can damage your credit score so use these tips and pay it off faster!

How is my CIBIL score affected by defaulting?

Amit, age 32, has availed of a loan to purchase his house. However, he has not made his EMI payments towards the loan for the past few months. In simple terms, that is known as a default – not making agreed upon payments towards an outstanding loan or credit card account to the lender.

What are the possible reasons for default?

  • Not having sufficient funds to make the payment
  • Unwillingness to make the payment, i.e. willful default
  • Procrastination or not making payments on account of being lax

However, whatever be the reason for not making a payment, it is recorded as defaulting, on your credit information report once a certain period of time has elapsed.

How is my CIBIL score affected by defaulting?

Your CIBIL score, or credit score with any other bureau in the country, is essentially a summary of your past credit history as a borrower. It details the loans or card accounts availed of by the borrower, and the repayment details thereof. Hence, not making a payment, or defaulting on your loan will in turn become a part of your long-term credit history, and negatively impact your credit score. A default signifies to the lender that there is a far deeper problem with the customer’s finances than for example just a delayed payment. This will lower your score, and make any future borrowing difficult.

How can I correct this?

Firstly, if you think that you will be making deferred (or delayed) payments for say the next two months, it is a good idea to speak to the concerned financial institution. They may be able (and willing) to help by working out a revised repayment plan with you.

On the other hand if it looks like your financial troubles are long-term, it may be wise to take the advice of a credit counselor who can best guide you to make the right decisions.

Finally, know that it is not an impossible task to clear CIBIL issues, even though it may appear difficult in the initial stages.

How does CIBIL score impact your financial status

Cibil score reflecting cibil credit report is a three digit number is indicator of one’s credit status, ie. how does one perform on credits & loans. It makes a huge difference on one’s financial worth. Simply put, a higher credit score appeals to lenders and good business prospects while a low or poor score will turn away investors and lenders. The owner of the credit score / report has to be very careful, alert and knowledgeable about what is credit, what is a good / bad score, how will it impact loan requests, will it make me loan eligible, etc. One should also be aware of the impact a CIBIL score or a credit score of any Bureau has on their financial reputation.

CIBIL and all other Credit Information Bureaus in India give a credit score rating from 300 to 900, with 300 being the lowest and 900 being the highest. Any score ranging from 300 – 599 is considered to be poor. A lender extending credit on such scores are dismal and your loan application may get straight away rejected. It is also possible, that potential employers would reject your candidature as well, because credit score is reflective of a person’s ability to manage his affairs. Poor financial management gets construed as inefficient skills to manage the most important aspect of life i.e. finance. A poor score translates to bad financial health which in turn indicates, the person is under financial crisis.

A score between 600 – 749 is an average credit score. An individual falling in this score range may still be able to access credit from certain lenders with higher risk appetite, but may find it difficult to get approval on an unsecured loan. Also, the loan getting approved may come at a higher cost, means that a higher rate of interest may get charged on loan.

Credit scores between 750 – 900 are considered to be good scores. A good score will be helpful in not just receiving loans from institutions, but will also facilitate getting charged the best interest rates and thus saving a sizable amount of money. Prospective employers will also view your candidature positively with a score above 750. In short, a ‘good’, to ‘very good’ credit score will definitely put one’s financial standing in good position.

The learning being that CIBIL score have a great impact on one’s financial status.

– Poor CIBIL score can lead to non-availability of loans that can result in financial losses
– Getting charged a higher rate of interest can lead to a higher EMI and or longer term for loan. Again leading to financial loss
– Poor score can also lead to getting rejection by potential employer which has a direct impact on finances of any individual

Therefore it is very important for one to constantly keep a track on his scores so that corrective measures could be taken to improve your credit score if the scores decrease.

Which factors affect your CIBIL score?

There are several important factors which reflect on a credit report or credit files and those that also compute the CIBIL score. These factors have proportionate influence on a credit score computing.

1. Payment History: This factor influences the credit score upto 35%.
All the payments that have been made in the past, on loans and credit cards impact the credit score. To have a good score, there has to be a payment history over a considerable period of time, on all credits – means, payments made in full and payments made on time. Any delays in payments can be detrimental. Or any payment although made on time, but a few days past the due date, can also harm the CIBIL score.

2. Outstanding Balances / Overdue Amount: This factor impacts the credit score computing upto 30%.
If you have had any overdue or outstanding amount on your secured loans or credit cards at the time of reporting, it can influence the credit report negatively.

3. Account Age / Tenurity: Impacts the credit score upto 15%.
The duration or period of loan or credit that has been taken by the applicant. This is always based on a credit card [unsecured loan] or secured card [secured loan or fixed trade line].

4. Credit Type: Impacts the credit score upto 10%.
This is the indication of unsecured:secured loans. Ideally, this ratio should be in the 3:2 number. The reason for this ratio is, that people prefer to go for an unsecured loan on priority basis as it does not involve a security cover or collateral. Hence, the percentage of unsecured loans available with people will be higher than a secured loan account. So, the CIBIL score calculation becomes convenient on the basis of higher percentage of unsecured loans and their data available.

5. Enquiries: Impacts the score upto 10%.
This indicates all the loan enquiries that a borrower has logged in at different lending institutions or banks. It could be enquiries for secured loans or credit cards. This also indicates the number of times, lenders have accessed one’s credit reports from Bureaus. Large number of enquiries that reflect on a report indicates that the person is credit hungry or it could also mean that their loan application has been rejected several times. An underwriter reviewing this section could become suspicious of large number of enquiries.

These are some of the major factors influencing a credit report or cibil score calculation. Other than those listed above, there are many other factors as well. Negative Flags listed on one’s report could also be an influencer. More the number of negative flags, lesser the score and lower the chances of loan approval. While some negative flags could be negated once the issue is settled by both the parties, there are some that can never be dissolved. The decisions based on these characters vary from bank to bank and every underwriter or analyzer views them from different perspective depending upon their policies and terms.

Reporting errors could also influence a credit score to an extent.