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:
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.
- 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.
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.
- 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.
- 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.
A credit report contains details about your credit history – loans, bankruptcies, credit accounts etc. The information in the report is used to generate your credit score, which is a three-digit numeric summary of your creditworthiness. Financial institutions will look at your credit report and credit score while making lending decisions. If you would like to view your CIBIL report, you would have to visit CIBIL’s official website and fill in their request form. The bureau will make available the report at a certain cost. It is important that you check your report at least two times a year to know where your creditworthiness lies. If you ever get the option to check free credit score from a legitimate source then do not let go of it.
At present, India’s credit bureau does not give out CIBIL reports for free. If you want to avail the report right this moment, you would have to pay a certain sum to avail it. However, recent news articles have suggested that the credit bureau is likely to begin providing individuals with one free credit report per year. The bureau is expected to begin doing so from January 1, 2017, news reports suggest. The central bank has said that the report must be provided on request, any time during the calendar year. Access to the free reports, which will be in the electronic format, is expected to raise consumer awareness and help people make more meaningful financial decisions. Now when you do avail a free CIBIL report, it is important that you treat it as a credit health management exercise. Many make the mistake of limiting themselves to checking on their report only before sending out a loan application. It is very essential that one regularly checks on his or her credit health so as to know where they stand financially.
If you want to check free credit score, visit the online website of Freescoreindia. Freescoreindia has joined hands with Credit Sudhaar to provide free credit scores in the country. In order to check free credit score from the website, you would be required to enter some basic information such as your name, email address, city and phone number. Once you have submitted all the necessary details and documents, your credit score will get updated to your online account in a span of 72 hours. You will also receive notification via SMS and email concerning the same. Finally, login to check free credit score.
It is prudent that you check your CIBIL report at least two times a year. Checking your report is the best way to know what needs improvement. If you plan on sending out a loan application, it would be a good idea to look at your report at least six months prior so as to make sure that no discrepancies have crept in. Regularly checking on your report will also help you realize whether or not you have fallen victim to identity theft. This is crucial given the rising cases of people falling victim to identity thefts. Additionally, staying updated about what your credit history looks like will help you set your financial goals.
Banks and other financial institutions will look at the contents of your CIBIL report to assess whether or not you are eligible for their loans. They will also determine the interest rates to charge you based on the conclusion they draw of you from your CIBIL report. If your score is low, chances are that lending institutions will charge high interest rates. Sometimes even employers will look at a candidate’s credit report to help them in their hiring decision. Landlords could also review your report when determining whether or not to rent to you. It is thus very important to keep track of the contents in your report and ensure that there are no errors of any sort. If you would like to check free credit score, we suggest you go through the website of Freescoreindia. If you come across other websites that will let you check your score or report for free, make sure it is authentic before taking things forward. Do not share yours personal details unless you are 100% certain that the website is authentic.