How Important Is One’s Credit Score?

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.

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What Do the Credit Score Numbers Mean?

A credit score plays an important role when it comes to opting for a loan or a line of credit like a credit card. Credit scores are used by lenders and various Non-banking financial services to evaluate your capability to avail a loan and make decision whether they can offer you a credit. The score is a result of your payment patterns, any default payments, any past settlements and many more.

There are many different scores which are available in the market for the lenders like Experian, Equifax and so on but Indian banks and non-banking financial services companies prefer CIBIL as their lead bureau for credit scores. Credit Information Bureau India Limited also known as CIBIL was founded in year 2000. It helps providing credit information to Indian banks to filter loan applications.

There are different categories of cibil score which helps boost your loan application and also gives you added benefits while availing a loan. The score ranges from 300 to 850, each financial transaction either contributes or downturn your cibil score.

Today we will sight the score breakdown and help you to understand what the credit score mean,

Score 0-349

If your credit score is between 0-349 this means you have no lending record. Many of us think to make our purchases on cash and do not take loan for any purpose but a no cibil score is equivalent to a bad cibil score. Always try getting small consumer loans from time to time and make regular payments on the same to see a great hike on your score. This will help you get started with the process and in future if you need a bigger loan like a home loan or a personal loan you will be able to avail a loan with ease.

Score 350-650

If you are in this category of credit score, most probably you have made a lot of financial mistakes like not paying your dues on time also if there is a settlement in your account. This will definitely hamper your chances of getting a loan in future. If you have not made a payment on time the transaction remains in your report for at least 5 years. A low cibil score will always pull you backwards from financial harmony, if you need help with repairing your credit, you can always approach a financial professional.

Score 650-699

This is termed to be a safe zone and you need to work hard to reach in the good score range. If you are in this category it is much likely you will get a loan but chances are you will need to pay much higher interest rates as compared to other options available in the market. Try not to default any loans further and you credit score will be up in no time.

 

 

Score 700-759

This category is called the safe category. In general terms you can easily get a loan from any lender without any hassles. This indicates that you make all your payments on time with almost no defaults and also your credit balances are low. If you are applying for a loan, you will get high priority as compared to others and you can also negotiate on the interest rates offered by the bank.

Score 760+

We can say that, very few people achieve this milestone. You can be in high demand between lenders if you fall in this range category. This credit score range means you have financial integrity and do not default your payment even by mistake. You have a long history of line of credits without a single default. They receive the best offer available in the market and also can negotiate with the lender on interest rates, processing fees and so on. It is really hard to achieve this breakthrough, but is even harder to maintain the same.

A credit score states a lot about you when it comes to financial integrity and how you manage your loan funds. It is a ladder you can use to achieve financial milestones and achieve an easy credit in desperate times, but the same factor can be the worst nightmare of your life and can haunt you for a very long time. Borrow responsibly and repay well to live in financial harmony.

4 Things which look harmless but can hurt your score

A credit score affects one’s financial life in numerous ways. We all know that missing a credit card payment or loan EMIs will damage our credit profile. But there are some things that look harmless but can have a drastic negative impact on our score. Avoid these financial decisions to avoid unexpected surprises.

Co-signing a loan – If your friend or a family member is not able to qualify for a loan, you may not find any harm in co-signing a loan in order to help him. However one needs to understand the financial implications of such a decision. Co-signing a loan has almost the same effect on your credit score as signing a loan oneself. The co-signed loan account will appear on your credit report like any other debt. By co-signing a loan you become legally responsible for paying the loan EMIs if the primary borrower fails to do so. If the primary borrower makes a late payment or misses a payment altogether then it will affect your credit profile as well. Co-signed loans are considered while calculating your debt to income ratio even if they are being paid on time. It reduces the lender’s perspective of how much you can afford to pay back and hence reduces your ability to borrow funds. So if you are planning to apply for a home loan in near future it is better to avoid co-signing for others.  If you do co-sign a loan and take a risk of its implications it is imperative that you check your credit report and score regularly. Keep track of how the co-signed loan is affecting your credit score.

 

Closing old credit card accounts – Sometimes in an effort to clean up credit reports and take control of one’s finances, people close their old credit card accounts that they no longer use. But doing so affects the score negatively. Credit utilization ratio that is a major determiner of CIBIL score is calculated by dividing the total credit card balances by the total available credit limit. Closing old credit cards, reduces your available credit limit and hence increases your utilization levels. This has a major negative impact on the credit score. Length of the credit history also affects one’s score. Old accounts help in raising the average age of your accounts that is good for the credit score. Closing them will reduce the average age of accounts and lower your score.

Paying off an old charge offs- It may be hard to believe but yes, paying off old charge offs can actually reduce your score than increase it. Charge off accounts are those that you haven’t paid and the lender no longer expects any further payments on them. Payments on these accounts will reactivate them and make them appear more current. The collection agency may report it as a new debt than a written off debt. As new accounts have a greater weightage during the credit score calculation, paying written off accounts can bring a drop in your score.  Make sure you do not do any such mistakes before applying for a home loan. Even a few points of score can affect your home loan approval process.

Pushing credit limit- We all know that credit utilization has a major impact on our credit score. That is why it is advised to keep this utilization level below 30%. But what many don’t know is that paying off the balance in full each month may not necessarily mean that you have low utilization levels. If you are in a habit of maxing out your card often you may have high utilization levels that maybe affecting your score negatively. The balance that is used to calculate the credit score is your last statement balance. So if you have charged an amount close to your limit, you will have a high credit utilization ratio. Such over dependence on credit impacts your score negatively.

People who have been diligently paying off their debt obligations can also have a low credit score if they make some of the above mistakes. If you find yourself in such a situation do not despair. You can still apply for loans for bad credit where lenders do not just go by a theoretical evaluation of score. They weigh several other factors to determine your eligibility. So if you are an otherwise responsible borrower, but your credit score took a hit because of the above reasons, you can easily get approved for loans for bad credit.

What is the Lowest Credit Score One Can Get?

Credit scores have caused a lot of anxiety in recent time. Whether you wish to apply for a credit card, take a loan to buy a car or house or refinance your existing loan; a minimum credit score criteria is a major hurdle that needs to be crossed. Lenders base their approval decisions on the score that you have attained. That is why people are consciously making efforts to increase their CIBIL score.

If you haven’t been paying attention to your score you may be wondering what could be the worst case scenario with your credit profile. What is the lowest credit score that you can get? While a credit score range depends on the credit scoring model that a specific bureau uses to calculate the score, in most cases this number lies between 300 and 850. So theoretically your score can go as low as 300, though it happens rarely.

There are several situations that may cause the score to sink to the bottom. Items like bankruptcy, judgements and tax liens on your credit report are some major causes. Apart from these, information regarding overutilization of credit, late payments, missed payments, and accounts that go into collections also find their way to the credit report and cause your score to plummet. A credit history with a combination of these causes will result in a rock bottom score.

So if the credit score is above the 300 mark, does that mean that you can sit back and relax? Not at all! A score between the range of 300-550 isn’t considered a very good score by the lenders. Each lender has his own threshold mark based on the amount of risk that he is willing to take. You will find it hard to qualify for loans with leading financial institutions if your score is below the 600 mark. So if the score fails to satisfy the minimum threshold limit for most lenders, then you will need to resort to bad credit personal loans. These loans are given at a very high rate of interest to cover the high risk financial behaviour of the borrower.

Can you do something to increase your score? The good news is “yes”. A credit score is a snapshot of your past credit behaviour. If you start doing positive things that are good for the score, it will start showing improvement in a few months time. To begin with, you can get a secured credit card. Here you will be required to deposit an amount that serves as your credit limit. Since the issuers do not check the credit score, this card is easy to obtain even with a low score. Use the card for small expenses every month and make timely payments. You can also take a bad credit personal loan and start making timely payments to build positive history. As new positive information gets recorded on the credit report the effect of old negative information starts diminishing.

People with an excellent credit score have a long history of on time payments and low balances on their credit card. Since they are at the least risk of defaulting such people can easily qualify for loans at low rate of interest. Even if your credit profile is in a very bad shape you too can aim to achieve a high score, by practising good credit management. Here are some good financial habits that you should follow.

  1. Analyse your report to see where you stand and identify actions that are bringing your score down.
  2. Pay your bills before the due date
  3. Do not use more than 30% of the available credit limit on your credit cards.
  4. Avoid opening unnecessary credit card accounts
  5. Do not close old credit card accounts
  6. Maintain a good mix of revolving and instalment credit.
  7. Check your credit report for errors and dispute if you find any discrepancies.

When you are on your journey of rebuilding credit make sure no new negative items enter your credit report. As new positive information gets recorded in the report you will be able to put all your past problems behind and hope for a bright future ahead.

Is a ‘Perfect’ Credit Score Even Possible? Or It’s a Myth?

The credit score is globally accepted as a signpost to a person’s credit worth. Banks and financial institutions consider this three digit number as a hallmark of your repayment capability. They gauge the risk factor associated with each loan application considering the credit score of the applicant.

In India CIBIL score is primarily considered as the benchmark of a person’s credit score. Credit Information Bureau of India and TransUnion CIBIL Limited are some of the other names of CIBIL which is the premium credit agency of India. It is country’s first credit bureau which modeled a systematic credit scoring system for banks and financial systems.

The CIBIL score is calculated between 300 to 900 points, wherein 900 is the perfect score while 300 is the lowest score. The more closer an individual or a business is to 900 CIBIL score, the better is their credit worth in the eyes of a lender. According to CIBIL 80 % of people with 750 or above points are granted loans by banks.

It is worthwhile to consider here if a good score a guarantee to loan approval? And for that matter, is it practical to get a perfect credit score such as 900 CIBIL points? Is it even possible to attain the perfection or it is just a myth?

It is not possible to state an absolute calculation on what causes low CIBIL score and why. So, let’s find out what compounds a CIBIL score to reach to point of understanding for this query.

Credit score calculations factor in too many aspects which are not absolute in nature and may vary from person to person. Every individual and business vary in terms of their credit worth and so does the impact of their financial moves.

However we can inscribe 5 common factors that affect credit score calculation globally:

  1. Repayments
    To maintain a good credit score, timely repayment of loans and credit bills is a must criterion. Indeed it is one of the key factors that define the stature of your score. According to CIBIL reports discipline in credit repayment can boost your score by 30 to 35 percent. Thus diligent repayment could be your first step towards the perfect CIBIL score.
  2. Credit utilization ratio
    As important it is to repay on time as is to keep a check on your credit accounts. You should always ensure that you do not overuse the credit limit offered to you. Those who exhaust their limit every month are less likely to have a good score. Lenders assume that you are short of cash and your financial situation might be not be as sound for a perfect score. So, using more than your credit limit has a negative impact on your credit report. Indeed it is recommended to limit your credit use far below 30% of total approved limit.
  3. Query
    Always ensure that you do not make multiple queries in a small period of time. Every time you make a query for loan or a credit card, it is marked on your credit report. Frequent queries
    on your report signify credit hungry nature and thus make you financially less strong.

 

  1. Credit mix
    Every time you borrow or use a credit product, the lender undertakes a risk. They charge interest rate to cover up this risk. When you borrow against a property or some other collateral the risk is substantially reduced and thus you are offered a better rate of interest. With this said, I hope it is clear why you should maintain a right credit mix of secured and unsecured loans. Too many unsecured loans restrict your score.
  2. Length of credit

The length of credit history also affects the score. The older is the good history the better effect it will have on your credit report. Thus those who have older history are rated better than new borrowers. This is also why when you close an old credit card with good history, it affects your score negatively.

 

Knowing these factors you can ensure a good score during all the seasons of your life. If however you target the perfection, you need to frequently check your credit report and monitor every activity that hurts your score.

Why does the credit score differ between credit bureau?

What is a credit bureau? How does that work? Does that affect my day-to-day life? We are here to give you a proper insight on credit bureaus and their different styles of credit score ratings.

When you apply for a loan, the bank or the non-banking financial firm will try to pull up your credit report. The credit report will have all that is needed to understand you’re past financial history, your current debts. By having a thorough research on the same the bank then considers giving you a loan or any financial product like a credit card. But from where do the banks get the credit report?

There are four major credit bureaus in India; they are Equifax, CIBIL, Experian and Highmark. Majority of banks and Non-banking financial companies in India take assistance of CIBIL in terms of credit report of the customer.

CIBIL was established in the year 2000, Equifax, Experian and Highmark was granted a license in the year 2010 to enter Indian market and help with the credit rating system.

The scoring styles used by all these bureaus are different as they practice differently and do not want to collude with other bureaus.

 The Scoring System

CIBIL- the score ranges from 300 to 900, 300 being the lowest and 900 being the best. You can opt for a free cibil score from various Internet websites, but if you want a detailed report it will cost you INR 500.  It is not necessary to have a perfect 900 to get the loans sanctioned, every bank have their own protocols and you can avail a loan with a low CIBIL score as well but with a high interest rate. You can get the report within 7 working days once applied.

EQUIFAX- Equifax has a different approach when it comes to scores. Their score ranges from 1 to 999, on that 1 being the lowest and 999 being the highest, they more incline on the corporate side rather than individuals, the major services provided by them are Credit risk and fraud, industry diagnostics, etc. They take 10 days to generate the report. You can get it for INR 400.

EXPERIAN- Experian credit ranges just like CIBIL that is between 300 and 900, 900 being the highest and 300 the lowest. Experian on the other hand and more inclined to collection and money recovery, data analysis and customer acquisition. Usually they take 20 days, but with you a speedy process you can get it within 15 days. This will cost you INR 399 + Taxes.

HIGHMARK- the credit range in case of Highmark is a bit complicated, the score ranges from 300 to 850, but the scores are considered poor, if they are below 640 and are excellent when above 720. They specialize in verification, credit assist, data quality management etc.

The reserve bank of India has mandated all the financial institutions to access the credit scores to analyze if the individual is credit worthy.

You can increase your cibil score by fair practicing, pay your bills on time, do not hand on bad debts. With the perfect CIBIL score you can avail a lot of financial benefits, these credit bureaus also help you analyze how you could improve your credit scores. It only used to happen when credit report is used to determine loans, but now we are taking steps towards using it for every little transactions some sited like,

Screening for postpaid SIM card connections, Credit reports for online sellers, fixing insurance premiums, using the report to analyze prospective tenants, etc.

The credit score awareness is less among Indian people, hence they lack in credit discipline. Many people are unaware of the poor credit score and are denied loans. The bureaus play a vital role for banks for determining the credit worthiness of an individual.

Credit Monitoring and Age: Are They Related?

With a significant rise in the cases relating to data breaches, data theft and identity theft there is a pressing need to take precaution and protect one’s credit record from such malignant activities. Credit monitoring is a defensive mechanism that aims to prevent, detect and resolve such kind of credit frauds.

Credit Monitoring essentially implies keeping track of an individual’s credit history and identifying any suspicious changes or activities. There are many companies that offer credit monitoring services and also provide you with a free credit score and report.

They notify the person whenever there is any new information in any of the credit reports like a credit inquiry, addition of a new loan account or delinquency. Such alerts enable the person to verify whether the changes made are genuine and accurate or not. If such developments are not initiated or authorized by the person then he can take necessary action right away to sort the issue before it becomes out of control. It reduces the chances of identity theft or any other kind of fraudulent activity.  It is an easy way of keeping a check on one’s credit health and score. These services also help in resolving and mitigating the damage if your account is breached. They also come handy if one is trying to improve credit score. Many credit monitoring companies offer an additional service of providing loans for low CIBIL score. Investing in such services is surely worth it as protection from fraud gives one peace of mind.

But should you think of signing up for such services at a particular age. Well ask yourself; at what age do you think you will be vulnerable to become a target of identity theft. It could in fact be at any age. Young and old, both are equally susceptible to become victims of identity theft. Thieves do not have any age preference. They are only concerned with making profit by using someone else’s personal information. Hence monitoring credit is extremely important irrespective of one’s age. It will alert you if there are any signs of your personal information being compromised.

Let’s see how credit monitoring helps in the young age when you start building your credit. Credit reporting errors like incorrect spelling of name, address, incorrect payment transactions are very common. These errors can do a big damage to your credit score. It is necessary that you get these errors corrected. But without proper monitoring, you will not even know that such errors exist.

Credit monitoring services also help in credit repair. They grade you on each of the factors that determine your credit rating. This helps you to identify your weak areas so that you can work upon them and improve your credit score. They guide you about what financial approach you should take so as to improve your rating. They also provide you with free credit score , so that you can track your progress on a regular basis. So if you wish to take a loan in the near future you should definitely think about approaching a credit monitoring firm, whatever be your age.

In old age financial aspects start taking a backseat, and people become less worried about their credit standing. But beware, the older generation is an easy target for the identity thieves. With high savings, big assets and excellent credit scores the senior adults become the perfect targets for criminals. So they too need a protection from such crimes. Lackadaisical attitude can destroy their impeccable credit history that took years to build. If a thief opens a fake credit card account in their name and starts charging purchases to the card without making the payments their score will plummet. Without proper monitoring, they may not even notice such activities for many months or years. With credit monitoring one can be alerted each time a new account is opened in one’s name. This way one can sort out things before they go out of hand.

Maintaining a good credit standing will give you better access to loans in times of need. You can obtain the best credit card reward offers and interest rates. Hiring a credit monitoring company can also save you from becoming a victim of identity theft. Hence monitor your credit reports and scores on a consistent basis whatever be your age.

How lenders estimate credit for mortgage loan requests?

Are you facing a financial crunch? Are you in need of urgent funding? You may approach a bank with a mortgage loan request.

Financial crisis is a very common problem. Your existing property can however take care of your crisis. A mortgage loan helps you to raise funds to meet financial shortage. This is a Secured Loan in which you keep your immovable property (home) as a deposit and take money from the lender. The borrower needs to repay the loan via regular monthly installments within a particular period of time.

But before you do that, you must know how lenders estimate credit for mortgage loan requests.

Mortgage Loan Eligibility   

Both salaried as well as self-Employed individuals can apply for a Mortgage Loan.

To avail a mortgage credit, you need to carry out certain minimum eligibility conditions. The following are some of the factors considered by the lenders while determining your eligibility for a mortgage loan:

  • Minimum age: You should be minimum of 21 years of age at the time of the loan application.
  • Annual income: What income is required to qualify for a mortgage loan depends on the lender.
  • Existing liabilities (if any): Your monthly liabilities are taken into consideration (say living expenses, other EMIs and bills)
  • The valuation of your property (to be mortgaged): The lender generally approves 80% of the registered value of your property as the loan.
  • Number of dependents: If you are responsible for the livelihood or upkeep of some members in the family; they are your dependents (spouse, kids, and parents).
  • Total work experience and stability in current job: How long you have been in the current organization or business, your qualification definitely play a vital role in assessing your loan eligibility. Lenders prefer stability of job and prefer those who are employed for at least two years.
  • Proper financial documents: You should have proper and relevant financial documents (pay slips, ITR, bank statements) to avail the loan.

Basically after gathering information about your income and debts the lender assesses your credit profile. They determine how much you could afford to borrow. Before prequalifying, they adjudge your ability and willingness to repay the loan.

For ability check, the emphasis is put on your income and job stability. However to check willingness to repay they would ask you the purpose of property use. They would check your credit report to closely study your previous history of meeting any such commitments.

Your credit report speaks volumes about your credit repayment history. Looking into your report if the lender finds the report is plagued with derogatory remarks and red flags, it might reject the loan application. The red flags indicate that you didn’t make timely payment of loans in the past or settled with the bank (that is again did not pay in full). In case there is any delinquency, then a valid reason for the same has to be given with proper evidences. All in all, low CIBIL score literally could scupper your mortgage application.

You are usually entitled to get a Loan Against Property (LAP) up to 80% of the registered value depending on your repayment capacity. It is important to keep in mind that every bank has its own set policy to evaluate your property and assess the borrower’s eligibility to repay the loan.

If you have a good monthly in-hand and you are not servicing any other loan, you are eligible to get 60 times your monthly net income as a loan. However if you seek bigger amount you can use home equity to raise the funds.

So whether you are looking for additional funds to meet educational expenses, marriage expenses, medical expenses or even business reasons you need not worry! If you have a property in your name you can use LAP from any of the banks such as HDFC home loan and meet the financial obligations.

It is important to understand here that there are no fixed rules to estimate the eligibility for mortgage. Each lender would consider an application on individual basis.

Being a borrower however you should do a proper homework and know the amount of loan you seek. You should negotiate as much as possible on loan duration and rate of interest. You should ask the lender if there are any prepayment charges. With a home equity at stake you should not leave any stone unturned to ensure the affordability of the loan.

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 Poor CIBIL Score Can Destroy Your Financial Goals?

You may not realize how poor CIBIL score can affect your life, but if you take a closer look you can see how it has the power to set itself as a major obstacle in several areas.

Here are a few ways how bad credit score can destroy your financial goals:

  1. Lack of Access to Money

Finding a loan for low credit score is harder than you think. Thus, if your life threw a curve-ball in the future and you need money on an urgent basis, things can become bleak easily. Most credit lending institutions perform a through credit check for every single loan application, and if you have a poor score it is highly unlikely that yours will get approved.

  1. High Interest Rates

Obtaining a loan for low CIBIL score is not impossible, but it comes with a catch- high interest rates. When the applicant has a history of CIBIL dispute  or lacks satisfactory CIBIL score then the lenders deem them as ” a high risk candidate”. To balance the risk they charge hefty interest rates for the personal loan, or any other kind of loan that they seek. This money paid in extra interest can be a lot, and thus make it difficult to manage the EMIs along with the monthly expenses.

  1. Job Risks

The importance of CIBIL score is increasing by the day in India. This is evident from the fact that more and more companies have started making it mandatory for the job seekers to have no history as a loan defaulter if they want to apply for jobs. SBI was one of the first to demonstrate this, when it mentioned clearly in the job advertisement that those candidates who had ever defaulted on a loan were ineligible for the posted jobs.

If you have a poor credit score then finding a good job can become difficult for you in the future. Even your existing job can be at risk if you default on a loan, as your company may look at it as a sign of bad money management and lack of responsibility.

  1. Increased Stress

Bad credit can rob you of joy in many ways. You start worrying constantly about your finances, and if you have a family to support then things can only become worse. Every time your phone rings you wonder if it is your debt collector. Paying with your credit card also starts making you nervous, as you pray that it doesn’t get declined when a seller swipes it in the machine. All this stress eventually forces you to seek professional help from a therapist of a doctor, which again costs you a lot of money, and you get caught in a vicious circle.

  1. Financial Limitations

Your finances can come under rigid constraints when your CIBIL score falls abysmally low. You have to limit your expenses in every possible way to get rid of the accumulating debt. Thus, unless something is really important, it has to wait until the debt is cleared. Home needs renovation? It has to wait. Car is broken? Need to use public transport for a while.

Needless to say, your quality of life takes a blow when your credit is not looking good. You can’t even apply for a new credit card, which could make things slightly easier for you, as for that too you need to have a good credit score.

Once you have understood the points mentioned above you can easily see why CIBIL score is important in your life. Even if you feel your score is good enough, you should never stop being careful with your debt payments. Missing one single EMI can have an impact on your credit report.  Plus, you can always improve credit score, if you know the basics of the same. If your score is already plummeting then it is best to get an expert to help you out. CreditSudhaar, for instance can provide you some of the best credit experts who can help improve your score in the smallest time possible.