A credit report (of which the score is an integral part) is the first document that a lender refers to when scrutinising an application for a loan or credit card. It helps them gauge whether it would be risky or otherwise, extending credit to that particular customer. Having a good credit history is important, and therefore as an extension, it is equally important to know more about your score.
CIBIL is the only credit bureau in India – This is one of the first questions that are asked: are there any other credit bureaus (or credit information companies) apart from CIBIL? The answer is yes – there are four bureaus operational in the country today, namely CIBIL, Equifax, Experian and CRIF High Mark. Owing to the fact that CIBIL is the oldest bureau, it is interchangeably used as a term to define bureaus.
Of course, while each bureau has its own scoring pattern for credit reports (typically ranging between 300 and 900), the basic logic is the same. Each of them uses a set of information to derive the score through analytics.
Closing a bad account does not erase it – Let us say a consumer has defaulted on a loan in the past, or made repeated late payments. Even if subsequently the entire loan has been paid off, remember that the information does not get wiped off your report. While an old ‘good’ or ‘bad’ account may be closed following complete outstanding payment, detailed payment history stays as-is on the credit report.
It is therefore a good practice to make sure any loan outstanding is paid on time, to avoid any blemish on your report, and consequently translating into a low or a poor score.
A poor score means no loan – It is true that the higher your score, the better are your chances of a loan or credit card application getting approved. Further, it also helps to get debt at the most competitive terms and interest rates. However, do keep in mind that a credit score is not the only deciding factor – other information such as your income, other current outstanding etc. also play an important role.
Hence, while a low or poor score may get you a loan, you may wind up paying more by way of interest. It is also possible that while you for example applied for a home loan of Rs. 1.0 crore, a lender would approve a loan of a lower amount. It is therefore important to build up your score.
Repairing a low score is impossible – At the initial stages, the very idea of repairing a low score seems impossible. However, this is not so – with persistence and financial diligence it is indeed possible to not only better your score, but maintain it as such. If you do not want to travel this path alone, it may be a prudent decision to avail of the services of a credit health monitoring company, wherein you would be guided at length as to how to build your score from the ground up.
Do remember therefore that help is always at hand, and you can (successfully) attempt to improve your cibil score.
Checking your own score brings it down – In order to track your credit history, you would need to obtain a copy of your credit report. It is a good practice to check your report annually or additionally if you’re applying for a fresh line of credit. It is commonly believed that checking your score can bring it down; however rest assured it is not so. This practice in fact helps you monitor your score and stay financially healthy.
Purchasing a credit report is expensive – None of the bureaus currently offer free scores to a consumer; they are available for purchase on payment of a small fee and on providing basic documentation.
Alternately, Freescoreindia.com offers a free score from Equifax, one of the bureaus. You can avail of this service by logging on to the website and following a simple hassle-free process.
Social media and credit scores – With the advent of social media, there is a new concept by which your presence on social media networks such as Facebook and Twitter can help assess your credit score. As per a recent update, companies are exploring new ways to gauge the creditworthiness of consumers by understanding their profiles and behaviour on social media.
In places where structured credit scores are not available, this emerging platform may just be a viable alternative for lenders to explore.
The bottom line is, you need stay credit healthy at all times, and knowing more about your score is the first step in the right direction.