Indian loan market has seen a rapid growth in recent years. Gone are the days, when people used to take loans only in times of financial crisis. Declining interest rates and flexibility to repay have made loans an attractive option to fulfil one’s needs today and repay the amount in equal monthly instalments. With this trend, credit scores and credit reports have also gained importance. People are waking up to the fact that scores affect many aspects of their financial life. So many people who have a low CIBIL score are now taking steps to improve and maintain it. They check their free credit score from all the three credit bureaus to keep track of their credit health. But is CIBIL score only a matter of concern to people looking for loan approvals. No, the importance of score goes much beyond that. But before we delve into that lets understand what a credit score is.
Three credit bureaus in India CIBIL, Equifax and Experian compile financial data shared by the member banks and other lending institutes relating to the credit taken by each individual. These bureaus prepare a credit report for each individual, which basically reflects your credit card and other loans repayment history. Based on your credit card usage and repayment track record the bureaus calculate a credit score. The way your marks had determined your level of knowledge in school, in the same way, the credit score determines the risk factor associated with a borrower.
Here are some places where your credit score will be evaluated
Loan approvals- Checking your credit score is one of the first things that lenders do to evaluate whether you are worthy of giving a loan. A high score helps in gaining lender’s trust and assures you of easy approvals. A low CIBIL score indicates that you haven’t dealt with your past debt obligations responsibly, hence lenders feel wary of lending you money. Even credit card approvals and credit limits get affected by your score. Hence a good score comes in handy in obtaining any kind of financial assistance.
Interest rate- An excellent CIBIL score not only helps in getting loan approvals, it also helps in bargaining for a better rate of interest. Lenders are ready to cut down on interest rates if the past records show that you are a diligent and responsible borrower. A low score costs you a lot, as banks charge a high interest rate to cover the risk that they are taking by lending you money. Hence your monthly interest outgo is directly impacted by your credit score.
Employment- Unheard of a few years ago, it is now increasingly becoming a common practice to check the CIBIL score of prospective employees. Credit checks are now an integral part of the hiring process for jobs in the finance sector, or positions which require a person to handle company’s money. It is basically done to ascertain whether you are responsible in handling money. So if you are looking for a job, check your free credit score to see that your credit profile is in good shape.
Insurance premiums- Whether you are buying a home insurance or a car insurance your score will play an important role in determining the insurance premium that you pay on it. A low score can cost you thousands of rupees more than someone who has an excellent rating.
Renting property- Your CIBIL score can influence the rental opportunities that you have, as many landlords too check your score before letting you out their property. A landlord may not want to take the risk of not getting paid by renting his property to a person with a low CIBIL score. They want to be sure that they get their rent on time, so they prefer renting to a person with good credit who has shown responsible behaviour in the past.
You can order your free credit score from any of the bureaus once every year to monitor your credit situation. An excellent credit rating is anything higher than 750, but even if your score is between the range of 700-750, you can easily qualify for loans and bargain for low interest rates. A score less than 600 is considered as a low CIBIL score. If you fall into this category don’t lose heart. You can still get your financial life back on track if you take conscious efforts and work towards improving CIBIL score.