Does a change in the spelling of your name or surname impact CIBIL Score

Consider the following three situations:

  • Vikas has a three credit cards and he is late in paying the bill by a few days on almost all three of them since the last few months.
  • Priya is getting married next month and is planning to change her name and adopt her husband’s surname post marriage.
  • Ayesha has a home loan which she plans to prepay in the coming few months using the performance bonus she is expecting.

Which of the above three situations is likely to impact your credit score and in what way?

  • Delayed payments by Vikas are harmful for his credit score, the more frequently he does it the worse it is. He will have to remedy his ways and will have to figure out bad credit fix soon to rectify this situation.
  • Priya changing her name or surname or both post marriage or otherwise will have no impact on her credit score whatsoever.
  • Ayesha pre-paying her loan will give a temporary jolt to her credit score but it not something that will have a lasting negative impact on the credit rating.

Name Change and Its Impact on the Credit Score:

As we said above changing the name or the spelling, adopting a new name, adding a surname etc have no impact whatsoever on the CIBIL score. The credit rating calculation is based on five parameters which are as follow: repayment history, credit mix, utilization ratio, credit inquiries and age of credit. Personal details like name, age, sex or contact details etc are not taken into account when calculating this score. Another aspect that needs to be kept in mind is that the income levels of an individual also have no impact on the calculation of the score; however lenders may want to have a look at the debt to income ratio or length of service etc before deciding whether they will lend to an individual or not.

When one changes their name all the details about various loans, credit cards and their repayment etc are carried forward in the new name. Past history whether good or bad is not erased so the score remains whatever it is without any impact on it due to name change.

Since CIBIL gets all data from lenders you need to inform the lenders as well as the rating agency about the name change so that the necessary changes can be made in the records. You will have to update the records with all the lenders from where you have running loans and also with credit card companies. They will make the necessary changes and the records are carried forward in the changed name.

You need not close or surrender your cards due to a name change; you can just inform the credit card company and get a new card issued with the changed name spelling without the need to close or surrender a card. This will ensure that older accounts remain in your credit trail which is good for the overall credit rating.  Women when getting married and changing their name/surname or adding their spouses name need to be especially careful. They should make sure that they get the necessary changes made so that their credit history is carried forward. Failing to do so, they may find it difficult to get a loan or credit card sanctioned in future in absence of any credit trail. It is also important to keep old accounts active and running to have a deep credit trail which gives a better picture of one’s credit behavior.

Though change in name does not directly impact the credit score it may cause delay or hassles if one is looking at applying for a card or a loan in the ensuing period. Change in the records of CIBIL does not happen immediately so they find themselves in a tricky situation when applying for new credit. This can be avoided to an extent by writing to CIBIL directly rather than waiting for the lenders to do so. Also ensure that you have sufficient time lag between the name change process and apllying for any fresh credit.

 

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Is all the hype on credit score justified?

If one had applied for a loan a decade or so back, they would have required the relevant documents, knowing the bank manager or knowing somebody who knew the bank manager and could “introduce” the applicant. Knowing the manager or being introduced to the manager ensured that the lender knew about you being a reliable borrower or a trustworthy person which could not be established by simply looking at the documents. Lenders want to give money to those who can be trusted and this judgment was made in a subjective way in the past and often backfired. Things in today’s times have changed; now this “trustworthiness” or “creditworthiness” can be established in a more objective way; with the help of the credit score.

So What is a Credit Score?

Before focusing on the hype that surround the credit score and if it is justified or not we will try and understand what the credit score is. The credit score is a three digit number that reflects the creditworthiness and also the credit health of the individual. This rating is calculated based on the credit history of the individual; this history must be at least six months old and includes various aspects related to loans, credit cards and other credit behavior.

Based on five main parameters that are namely the repayment history, credit mix, credit utilization, inquiries and loan tenure the credit score is calculated. Amongst the five the repayment history is the most important parameter followed by credit utilization. These aspects are used to arrive at the credit score of the individual. The Credit Information Report which is a detailed contains a lot of information related to loans and the individual apart from the credit score.

Why is it Important?

So now we know how the score is calculated. So, why is it important? The score is important as it lets the prospective lender judge if the prospective borrower can be trusted or not. Let us start from the beginning. When an applicant applies for a loan, he/she submits an application along with the required documents. A financial institute will get hundreds of applications, they want to be sure that they lend the money to the right candidate, a person who can be trusted and is credit worthy. So how do they do this? This cannot be judged by simply look at the documents and the application form. This is what brings us to the credit rating.

The prospective lender will ask for the CIR of the applicant and based on the CIR the lender will decide whether to go on to the next step or not. The score is calculated based on the past credit behavior of an individual, thus the lender can make an assessment whether a person is likely to be a responsible borrower or not or is likely to default based on his past behavior and his current debt obligations.

Each financial institution will have its own set of rules and requirements when it comes to accepting a loan application or not. One of the criterions that the applicant has to comply with also concerns the credit rating of an individual. Thus those who have a score that is less than what is acceptable to the lender will not be sanctioned a loan, their application is likely to be rejected at the first step only. The acceptable credit score varies not only with the lender but also may differ depending on the loan type.

Generally a score of 750 is considered to be good enough to get a loan sanctioned. As per the statistics by CIBIL 79% of all loans sanctioned are to those people who have a score of 750 plus. If you are looking for a loan and have a score below this, it is a good idea to improve CIBIL score before you apply for a loan.

So is thy Hype Justified……

To clarify CIBIL or any other rating agency does not specify who should be given a loan or not, they just collect the data from various lenders and arrive at a score based on it. However, having said that almost all lenders look at an individual’s credit score before deciding whether to lend to him/her or not. Thus getting a loan or a credit card is heavily dependent on a healthy credit rating else your chances of getting a loan approved go down. Even if one were to get a loan with a low score it would be at higher interest rates. So yes the credit score is important and one must focus on keeping it healthy, not for the hype but for your own sake.

 

How Your Credit Score Affects Your Happiness

There are a number of things that account for our sense of fulfillment. For example, wealth, attractive job, health, etc. are some of the things that are commonly associated with our overall happiness. However, do you know that your credit score can also affect your happiness?

Your credit score is not just an indicator of your creditworthiness but also of your happiness. If you think about it, it makes a complete sense. Who do you think is more likely to be happy with their life- a person with low credit score who is struggling to get a personal loan, or a person with an excellent credit score who knows that they won’t have any trouble if they needed a loan in the future?

The following are some of reasons why a good CIBIL rating can also increase your level of happiness:

  1. Better Management Equals a Comfortable Life

It is extremely difficult to build a high credit score without being good at managing things, and without being responsible. It takes patience and dedication to create a good score. You have to pay your EMIs on time, do credit check from time to time, and also avoid your credit cards from collecting debt. All this is not possible if you are not good at management. However, if you are good at management then your life is also likely to be easier and you will run into problems much less frequently than others.

  1. Peace of Mind

Financial emergencies lurk at every corner of your life. If you had to move to a new city one day, or had to pay for hefty medical bills for someone close to you then it is possible that may fall short on cash and need a personal loan. Unless you have a high CIBIL score it can be really difficult to get one. Thus, when you have a good score it gives you a peace of mind that you can deal with any kind of financial problem in future should it arise.

  1. Job Eligibility

A good job is often related to your happiness, and lately it has become mandatory to have a good track record in terms of credit history if you want a job. Many companies, especially banks and other financial institutions have started taking the job applicants’ credit history into account when filtering the candidates. In fact, when SBI published an advertisement for job openings it clearly mentioned that those candidates who had ever defaulted were not eligible for the jobs.

  1. Savings

A high credit score is also linked to your savings. It has been found that the people who have a good credit score also tend to have decent savings which can be helpful in rough times. Since decent savings means comfortable life, they also attribute to your general happiness.

So, by now you must have got a good idea why a high credit score is important for your happiness. If you are not satisfied with your current score then you can always improve in by doing a few basic things, which are:

  • Paying EMIs and Bills on Time: The best way to increase credit score is by paying your loan EMIs and credit card bills on time. Credit bureaus regard this habit with great admiration and show it in your credit score.
  • Credit Report Monitoring: If you want to avoid developing a poor credit score then it’s best that you inculcate a habit of checking your credit report from time to time. This has two advantages. First, you can identify errors or discrepancies in your report and have them corrected. This will immediately improve your score. Second, if you notice that your score has been dropping lately then you go through your report and find out the reason easily.

According to CIBIL’s scoring system your credit score should always be higher than 650 (as the maximum possible is 900). Any score higher than that is considered good, and you can get a loan easily. Similarly, having a low cibil score than that could lead to a challenging and unhappy life.