Which Credit Score I Should See?

In the world of finance, you see a lot of products like loans, credit cards, Insurance, mutual funds, hedge funds, etc. if you dig into each category, you will find a lot of sub products which would support its title. That is just tip of the ice berg. When you dig deeper, there are financial products you won’t even understand.

Let us take an easy example of credit cards for instance, if you apply for one at a particular credit card vendor, you will be given a lot of credit card options like silver, gold, platinum, etc. In these categories as well there will be different terms for different cards with different benefits and different rewards.

Just like any other financial product, there are types of credit score as well. Yes, we are right! There are many credit bureaus who record your financial transactions with them and when demanded by you or a future lender they produce the report.

Now you would be thinking, how many score do I have and how should I understand if which credit score should be referred for my financial transactions? Do not worry; you are not alone to get this question in your head. As many of us are clueless on what is a credit score? How is it important? How many of them are there?

We will answer all these questions here,

A credit score

A credit score is a number that allows the lender to judge your financial standing. With the help of a credit report the lender can see and gauge how you make your payments and if you are making all your payments on time. If you have a better credit history, you will act as a hot lead for loan lenders in the market.

How is it important and how to improve your score?

Every individual has a credit report, loan lenders in the market always seek people with good a goods score so that they can lend money with ease. Not only in terms of loan but a good report can help you land at your dream job; get you a fancy house for rent and many more. The credit score is making its way out of financial market and entering into common grounds as well in terms of verification process.

If you monitor your credit report from time to time, you will know where you stand and this can lead you to act on improving your score. Just make sure, you make all your payments on time, use less debt, have variation in loan accounts and do not close any existing credit lines. For example, if you have a chance to close your car loan, try to close it as it will save you a lot of money in car loan interest rate but do not close your credit cards. The older credit cards you have the more you have chances to get your score up in no time.

 

How many are there?

As mentioned earlier, there are many credit score available with different bureaus in India. Credit bureaus like Transunion, Equifax, CIBIL, etc. are the main players in this business. As far as Indian lenders go, they prefer getting CIBIL report for your verification purposes. If you are considering one score, you should consider CIBIL.

Their scoring models are entirely different from one another and the score range also differs. This is one particular reason why, every lender just sticks to one credit report which then makes the process easy for them.

Even though you might think, you only have one credit score to monitor, you are wrong. You have a dozens of score which can give you different credit rating and get you confused. Instead, just focus on one and if necessary two for your reference. Check with your bank which credit rating they prefer and start monitoring the same, because in future if you are considering a loan, you will go to your home bank first.

Is Your Credit Score Not Looking Too Great at the Moment?

Awareness about credit scores, their utility and calculation is still low in India. However with the availability of free credit reports annually (if requested by individual), things could change for the better. So getting a credit report will not cost you anything now (unless you want to get more than four reports in a year) and it will allow you to assess your credit health regularly.

If you have recently checked your credit score because you need a loan or because you want to be credit healthy and it’s not good then read on, we have some useful information for you.

Probable Reasons for Your Score Not Being Great:

CIBIL score calculation is based on five factors, so a low score could most likely mean that you have not paid enough attention to one or more of them. So here are a few possible reasons that could cause your score to be low:

  • Irregular Payments: Paying on time is very important as it is the factor that influences the credit scores the maximum. Not paying on time frequently could single handedly spoil your credit rating, not to mention the huge amounts that have to be paid for fines and interest on overdue amounts.
  • Overuse of Credit Card: This may not seem like an obvious cause for the score not looking too good but credit card usage also impacts credit score calculation. Overuse of your credit card (more than 30% of the sanctioned card limit) regularly is indicative of over dependence on credit even if you do pay your dues on time and is not good for the rating.
  • Applying for too many Loans: Whenever you apply for a loan, the prospective lender seeks your credit report. This is known as a hard enquiry. All hard enquiries are reported in your CIR and too many enquiries in a short span are indicative of credit hungry behavior. Apply for a loan only when you are sure about meeting the eligibility criteria and when you absolutely need one.
  • High Proportion of Unsecured Debt: Loans may be secured (when they are backed by collateral) or unsecured (not backed by any collateral). A healthy mix of secured and unsecured loans makes for a healthy credit rating; a higher proportion of unsecured loans could cause the score to be low.
  • Settling an Account: If you have an unpaid loan or some old credit card dues and you are thinking about settling it then think again. Settling any account is sure to raise red flags in the minds of any future lender. Getting a loan for low CIBIL scoreis difficult but an account reported as “settled” is sure to make things all the more difficult. What’s more a settled account features in your credit report for up to 7 years.
  • Guaranteeing a Loan without being sure: This is something that you may not anticipate to be the cause of a low score. If you have guaranteed a loan and the borrower defaults on it, then not only will it be reported in his/her CIR but it will also be reported in your CIR. Thus your score will also fall, so guarantee a loan only if you are sure about the borrower’s capacity and intentions of repaying on time.

What Can You Do?

The remedy would depend on the cause of the low score. Credit ratings do not get better or worse in a month or two, they reflect your credit history and thus all your credit related activity impacts it. Some impact it more while some impact it less. So if your payments are irregular or if you use your credit card too much then you could start paying regularly and reduces your card usage. You will see a gradual improvement in your score.

If you have already settled an account then there is nothing that can be done except you need to make sure that you are a responsible borrower in future and you do pay your dues on time in the future. Similarly in case you have guaranteed a loan then make sure that the borrowers pay his/her dues on time. Refraining from applying for loans indiscriminately can also help if that is the cause of the problem.

Do remember that credit histories are made over a long period of time and there is no short cut to improving them. Thus if your score is not too good, it’s important that you identify the reason/s for it and the work on it while remembering that it may take time for it to actually improve; so you need to be patient and focused.

Know the rules to repair your credit score quickly

When I am in the need of some cash liquidity and suddenly the loan gets rejected! What a nightmare. No sign of any help. can’t approach any of friends or relatives as my principals do not allow me. My credit card limit has been exhausted and I am just left with some hard cash with me. When I am thinking about the reasons for the rejection of my loan, I take all the minute details and rewind it in my head. Where did I go wrong?

The first thing I encountered was my credit score. My loans were getting rejected because my credit score was low. But then I thought, I have not taken any loan to date. Why is my credit score low then? All my information is correct. No identity theft issue with my report. I pay my regular credit card’s bills before the due date. I have always been the most responsible payer. I have no add-on cards which can make a possibility of default. While I checked my report, checking all the details, I came to know that while I was too young in my early 20s, I had applied for the credit card. I never used it but the yearly charges kept on adding and have become a huge default. Oh, Freak. How come I never noticed this? Now, when I am in a dire need of cash, all I am facing is rejection from everywhere. Just because many years ago I applied for a credit card and never bothered if it existed!

The above saying is of Amit, a responsible payer! What went wrong in his case? When we apply for a credit card, they have some annual handling charges. The amount can be as minimal as 500 Rs. But that matters. When we do not pay that amount, surcharges are added to it. Interest keeps on adding to it. And then it’s considered a default. Suppose when this gets to our notice, we clear out the outstanding without even settlement and pay the complete amount. The card is then closed. But what about the credit score? How soon will it be changed? When will the score go up? When will mistakes be removed?

When trying to increase CIBIL Score, always remember one thumb rule. Nothing changes overnight. Neither was a dip in your score overnight. Nor will increase in your score overnight. We have to be patient while any of these process. There are few of the options which can be used to make this process a little quicker. But again, nothing happens too quick.

  1. Secured Credits for short term
  2. Secured Credit cards

One of the easy and fast way to repair the credit score quickly is secured credit card. A secured credit card is the one where you keep an amount of money as a fixed deposit. You can use your credit card as normal. And pay when the bill is due. Supposing you fail to pay the bill on the due date, your bill amount from that fixed deposit amount will be deducted. When this process is done without any errors for few months, it shows your credibility and also how responsible the borrower is. Which helps in getting the score up in short span.

  1. Gold Loan

One more type of secured credit for a short span is a gold loan. Get the cash against any of your gold ornament for short span. Be a responsible payer, and keep paying the EMIs on time. Withing a very short time compared to others, your score will start boosting.

  1. Unsecured Credits for a short span.
  2. Credit Cards

When using normal credit cards, make sure you do not miss any payments. Use 30% – 40% of your credit limit. Even when you have the capacity of repaying the full credit limit amount, do not have this practice. It is a major mistake which people make. When more than 40% of the limit is used, causes a dip in the score. Make sure this is not the reason for your bad score. When the correct amount is used and repaid on time, even this would get the score up!

  1. Personal loan

Take a personal loan from either a Bank or NBFC which is for a short span. If any dues remaining of the previous loan, try clearing out all of them as soon as you can from this loan and parallelly pay this loan’s EMIs as well!

 

If done patiently and diligently, there is no scope that your score will not increase. Patience and Responsibility are two main things one has to keep while they are in the process to increase CIBIL score. Do not worry as there is a solution to everything!

How I got 800 credit score without any loans

Credit Score becomes an important aspect when it comes to taking loans or getting a credit card. Today, we have the facility to buy or get something which we once had thought of buying few years down the line. A vehicle, a house, a property or the higher education, anything can be conquered by taking a loan today than tomorrow. With few percentages of interest which you have to give it to the bank, you have the access to that amount of money much earlier than today! These amounts are quite big. When we talk about small amounts gold loans and credit cards are perfect examples.

As your score is majorly the reflection of how credit healthy you are i.e. how responsible are you for paying the credits you have taken, would determine the worthiness. When one had not taken any credit say in terms of card or any type of loan they do not have any score and is called a No History customer. And suppose one has taken any type of credit and when he/she pays the EMIs on time, is when the good score is built. But, what if one does not want to take any loan but still wants a good score? What is a good score? Any score which is above 750 of the range of 300-900 is considered a good score.

Let’s understand what Sahil has to say in achieving 800 scores without taking any loan!

Hi, I am Sahil from Delhi. I wanted to buy a new house. When I went to axis bank and inquired for axis bank home loan, to my surprise they asked me to first build the credit score. I had never taken any loan in past, neither did I owe any credit card. I am with dad in his business and never had any chance to go and take any kind of credit. I went home back and researched. How can I build my score?

Let me share my secret of getting 810 scores without any loan. So I read all the parameters of how the score is calculated. The 5 parameters viz. Payment History, Amount Owed, Length of Credit History, New Credit and Types of Credit. which makes the score was my whole Idea about how I was supposed to go! So I first started with a credit mix. I applied for 2 types of credit card. Secured Credit Card and the normal Credit Card. After a few months or regular use and payments, I applied for one more card. I made sure that I do not overuse my credit limit. I never used my card for more than 35-40% of its total limit.

The credit score is then achieved and reflected in the bureau report after 6 months. I checked my free credit score to make sure that what I was doing was correct and error free. I had maintained a good record and kept working on the same lines. In less than expected time, I was rewarded with my own hard work and efforts. My score was 810 and too without taking any kind of loan!

With Sahil’s experience, one thing what we can take is always to try working on the major 5 parameters of the score which determines it. Try paying the amount which is due on time, take credit but repay, do not take undue advantage, do not close old accounts, keep applying for new credits but do not act credit healthy and lastly have a good mix of secured and unsecured credit with a fixed or revolving type of credit mix. A healthy score will be no away from you!