Mistakes to be avoided when trying to improve CIBIL score

A credit score is something that reflects your credit history and thus it is something that cannot be built or destroyed in haste. A lot of factors contribute in making or breaking your credit rating. Being a responsible borrower is the simplest way to having a good cibil score; but if you have not done that then you will have to work on trying to get a better score. While there are certain things that can help you build your score, there are some other aspects that can pull it down. So here is a look at few things to avoid if you are looking at improving your score.

  • Excessive Use of Credit Card: Credit cards are a great convenience but their use may often be criticized as one can easily go overboard and regret it later. However one may think that if they manage to pay their full dues on time the credit card usage will never cause a problem, but this notion is wrong. Using your card judiciously is important if you are looking at improving your score. This means that you need to limit your credit card expenditure per cycle to 40% or less of the sanctioned cared limit. This is known as credit utilization ratio and this needs to be calculated per card wise as well as for all cards put together in case of multiple cards. High credit utilization can harm the score as the user appears to be credit hungry.
  • Making too Many Inquiries: When you apply for a loan, the lender seeks your CIR from the credit agency which is known as a hard inquiry. Each hard inquiry is recorded in the CIR and impacts the score negatively. Thus if you truly require a loan then make sure you research well before you actually apply for a loan. This will ensure that your loan application is not rejected which will eliminate the need to apply for a loan elsewhere. So for example if you want to buy a new car and need a loan for it, then carefully research about car loans Check which lender offers loans at what rates, what is the LTV ratio, what are the documents required, at what credit score they are willing to offer loans and so on. You should then approach a lender who you know meets your requirements and who will be willing to lend to you based on your rating and profile. Refrain from making unnecessary enquiries.
  • Settling an Account: Consider an example to understand this aspect. Priya is looking at improving her credit score so that she can apply for a home loan next year. She goes through her CIR and spots an old credit card debt; she decides to take care with an aim of improving her score. She got in touch with the credit card company and she paid the dues after some negotiation. Hoping to see her score improve she got her CIR but was dismayed that it had reduced further. If you are as confused as Priya that why did this happen then we have an explanation. When you pay old dues then the fate of your score depends on how this repayment is reported. If the account is reported as settled then it could mean trouble as it will raise a question mark in the minds of all future lenders about getting their money back in full. If the debt is reported as simply being paid then it will have an opposite impact.  
  • Guaranteeing a loan without thinking: Sometimes an applicant may find it difficult to get a loan on his/her own due to lack of proper documents, low score, not meeting the eligibility criteria and so on. In such a scenario they may ask someone to guarantee their loan. Well this can definitely ease out the problems for the person seeking the loan but may cause the guarantor to land in a tricky position without realizing so. If the applicant fails to pay his/her dues on time then the guarantor may be asked to do soon. What’s more each delayed payment can harm the score of the guarantor as well. So though you may be servicing all your loans on time you score may still be low because of a loan you guaranteed. Thus if you plan to guarantee a loan, do it after being sure about the applicant, you own ability to service it in case the applicant fails to so and also after you are sure about its impact on your own credit score.

Often small things can cause your score to dip. Thus make sure you steer clear from the above mistakes if you want to be credit healthy.

 

Reasons why errors on your CIBIL Report can be Destructive

Priya wanted to gift a new card to her parents on their anniversary. She chose the car, model and color keeping her parent’s choice and requirements in mind. She then applied for a loan, she knew it would not be difficult to get a loan as she had all the required documents and she had also maintained a good credit history. Her loan was rejected due to a low credit score and she was almost shocked as she had always been a responsible borrower. On going through her Credit Information Report she was shocked to see that there were delayed payments reported in it. She had never missed a payment and it turned out it was a reporting error by the lender.

So Priya missed a chance to gift her loved ones at the right occasion, this could have been avoided if she had been pre-emptive and had applied for a free CIBIL Score and checked if the score is acceptable to the lending agency. Despite being meticulous in her credit habits she had to face some problems.

How can errors in your CIBIL Report be Destructive?

While for Priya it was disappointment, a low CIBIL score can cause bigger problems too. It can result in financial loss, missed opportunities and a lot of wasted time and effort for no fault of yours. Being credit healthy is important and it could be doubly distressing if despite being a careful borrower your score is low due to an error in the report. While these errors can be rectified and once they are removed from your report they will enhance credit score but sometimes the delay can cause a lot of trouble and loss too. These errors could be wrong reporting of a default in payment, a loan or credit card that does not belong to you being reported under your name which will reduce your borrowing capacity and if there have been any defaults on that loan they will also be include in your score calculation.  Here are a few ways in which these errors can be destructive:

  • Cause Loan Rejection: If a lender reports that you have missed a payment or the loan is reported as settled erroneously then this could cause some serious trouble for you. Not only your credit rating will take a hit, a look at the CIR will scare away the lenders. No lender wants to lend to a person who does not pay on time or is a default risk. Thus the lender will not know that the reporting in the CIR is erroneous and they will reject your loan application without a second though whatsoever.
  • Harm your Job Prospects: This may not seem like the most obvious impact of an error in the CIR but could be more harmful then getting a loan rejected. Imagine not getting the dream job or losing out to a competitor in the final round of interviewing due to an error on your report which can cause you to appear like an untrustworthy candidate or somebody who is debt ridden. Increasing number of employers are seeking credit check of prospective employees along with a background check and a health check. This is to ensure that the employee that they hire is trustworthy and will not get into legal trouble due to unpaid dues. Thus an error could cost you dearly at a job interview.
  • Credit Card Application Rejection: An error in the CIR could also cause a new credit card application to be rejected. If your CIR show you have a high utilization ratio, missed payments or have a “settled” status account in your report even erroneously it could lead to the card company rejecting your application. While you can certainly apply for the card again after rectifying the error but sometimes the delay can cause more than expected trouble.
  • Make a loan more expensive: Errors on the CIR can lower your scores which can cause lenders to assume you to be a high risk borrower. This can make them charge you higher interest rates on loans then they would have charged otherwise. Higher the risk, higher the interest you are charged so you can end up paying more interest on a loan for no fault of yours.

The best way to avoid getting into a situation like this is to get your credit report from time to time so that you are aware of any errors in it and get sufficient time to rectify it. This will ensure that you do not suffer any losses because of these errors.

 

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.

 

5 Ways to Build Your Credit Score from Scratch

It can be a terrifying experience to find out that your loan application was rejected due to the absence of a credit score. However, there is no reason to be alarmed as there are many people who don’t have a credit score for many reasons. If your credit history is blank, then you can build a good one in many simple ways.

The following are 5 good ways to build your credit score from scratch:

  1. Joint Account Holder

The easiest way to build a credit score to become a joint account holder with a person who already has a credit history. However, you must choose your partner carefully.

You would want someone who you trust, and who trusts you too.  This is because your credit history will be based on the kind of credit history they have as well. So, if they have a good CIBIL rating and a good history of timely payments, then your credit score will also increase. Similarly, if they tend to delay EMI payments, etc. then your will have low CIBIL score.

If you want a home loan on an urgent basis but don’t have a good credit score, or have no score at all, then becoming a joint holder is one of the best options for you. This is because the lenders generally don’t consider passing a loan “risky” then there is a joint account holder involved who has a promising credit history.

  1. Becoming Authorized User

It is not always possible to convince someone to become a joint-account holder with you. In that case, they might at least make you an authorized user.

While being an authorized user you don’t share any financial responsibility with the account holder and server only as a signer you can still get credit building advantages. The only problem with this method, however, that you may not see the results, at least for a long time. So, if you want to build credit score fast then becoming a joint account holder is a better option.

  1. Getting a Credit Card

Getting a credit card and using it wisely is another excellent and simple way to build your credit score. Since most banks love to push credit card usage anyway, it won’t be hard for you to get one for yourself. However, the real work begins when you get to spending. Here are a few things to keep in mind when you use your credit card:

  • Credit Utilization: No matter what the limit on your credit card is you must spend it wisely. Ideally, you shouldn’t spend more than 30% of the credit limit. Thus, if the credit limit is Rs. 1 lakh then you should cap your monthly expenses with the credit card to a maximum of Rs. 30,000.
  • Timely Payments: Believe it or not, timely payments are extremely important to build a healthy credit score. If a potential lender performs a credit check and finds a history of delayed payments, then it is easily possible that they will reject your loan application. Similarly, if they see a history of payments done on time then they will feel confidence in your creditworthiness and it will be easier for them to sanction a loan.
  1. Personal Loans

Personal loans are tricky to get especially when you don’t have a credit score. However, you still have a good chance to get a small personal loan. In fact, if you could manage a personal loan along with a credit card then you can get the desired results faster as a mix of different credit forms (loans and credit cards) can give an impetus to the credit score.

  1. Monitoring Your Credit Report

You can easily find your CIBIL rating online. Most of the credit bureaus of India allow the users to download their credit report for a nominal fee. If checking your credit report you find that there are some errors or discrepancies, then you can have them corrected and see an improvement in your score.

Credit building is a long-term process. Unless you already have a credit score it can be difficult to build one, and not to mention the time and effort it demands. That being said, if you can find someone who has some experience in this area then you can succeed in the endeavor easily and faster.

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.

 

Does credit card limit has any impact on your credit score?

A good CIBIL score ensures that you can have an easy access to financial services in times of need. You can qualify for loans at a low rate of interest as a good CIBIL rating demonstrates that you are financially stable. There are several factors that go into the calculation of a credit score. Though different agencies have different credit scoring algorithms the major influencing factors for all of them include the payment history, credit utilization ratio, length of the credit history, type of accounts and new credit.

Credit utilization ratio has a strong correlation with the credit score. This ratio depends on two factors. Your total outstanding balance and the credit limit. A credit limit is the maximum amount that will be extended to you by the lender. You cannot charge more than that amount within a stipulated period of time. If you do not know your credit limit, you can either sign in to your credit card account to view the limit or call and ask the card company.

The credit utilization ratio is calculated by dividing the total outstanding balance on all revolving accounts with the total credit limit. For example if you have a credit limit of Rs 3,00,000 and your outstanding balance at the end of the month is Rs 2,40,000, your credit utilization ratio is 2,40,000/3,00,000 i.e 0.80. This means that you are using 80% of the available credit. This high ratio is a strong warning sign of credit risk. It indicates that either you are living beyond your means or you are experiencing financial difficulty. Your profile is considered risky as you may have trouble making future payments. Hence a high utilization will bring your credit score down. If your outstanding balance is only Rs 30,000 then the ratio will be 30,000/3,00,00 i.e 0.10. A low utilization ratio is a sign of financial soundness as you are not using too much of available credit. This works in favour of the credit score. Hence the credit card limit directly affects the credit utilization ratio and therefore the credit score of an individual.

Does a low credit limit translate into a low score?

If you have a low credit limit, it does not necessarily mean that you will have a low credit score. If you pay your credit cards in full each month before the due date and do not carry any balances your credit utilization ratio will be zero. In this case the amount of credit limit will not have any effect on the score. It is always a good idea to keep the credit card balance as low as possible in relation to the total credit limit. If you do so you can keep the overall credit picture healthy even if your limit is not too high.

Should you request for a credit limit increase to raise your score?

 

If you are looking to improve credit score, then a higher credit limit will definitely be a good thing. You can either request your current credit card company to raise your limit or apply for a new credit card. Even if the amount owed by you remains the same, a high limit will result in a lower debt utilization. It is suggested to keep the utilization below 30% if you are trying to improve credit score.

 

When a card company extends your credit limit it increases the amount of debt you can incur and gives you greater buying power. Just make sure that a high limit does not tempt you to increase your spending, otherwise the whole purpose of getting the limit increased will be defeated. Take into account your saving goals and exercise financial discipline. Use the limit only when you really need it. If you are not careful you will carry more balances each month and that will translate into paying more interest to the card company.

 

Will closing a credit card account affect my credit score?

It is never a good decision to close old unused credit cards just for the sake of cleaning up your credit profile as far as credit score is concerned. That’s because closing a card will reduce your total credit limit available and increase your credit utilization ratio.

Your credit card limit surely has an effect on the credit score. But it is only one piece of the puzzle. If you are trying to improve credit score it is necessary to look at the bigger picture. Paying down outstanding balances and maintaining a clean track record of on time payments also go a long way in enhancing your score.

 

The value attached to a good CIBIL score

It is not uncommon these days to have someone mention the credit report or credit score as a topic of discussion, especially when discussing the matter of one’s financial health. This is owing to the greater awareness on the topic over the past few years, given that in today’s times practically no financial transaction (especially when it comes to availing of a loan or credit card) can go through without a quick credit check. This all-important scrutiny is conducted by the lender in question, be it a bank or financial institution to ascertain the borrower’s financial standing.

bad credit scoreWhat is a CIBIL score?

Ranging between 300 and 900 typically, a credit score is derived from the more detailed credit information report popularly known as CIBIL report, which is nothing but information pertaining to the loan accounts and credit card accounts that an individual has availed of, whether currently or even in the past. It takes into account how the accounts have been serviced by the person, and exemplary behaviour will naturally result in a higher score, as compared to someone who has been possibly lax or negligent with maintaining their credit health. With CIBIL (one of the four credit bureaus in India), a score of 750 and above is normally considered to be a good score by most lenders.

How does the credit score matter?

With a good credit score, when you apply for a fresh line of credit lenders are more likely to look at your application more favourably and the chances of application rejection are immediately lowered. Of course no lender views the score in isolation so other factors do play a prominent role as well, but the score is the first piece of information that practically serves as a means to screen any loan or credit card application.

Let us take an example. Two people who apply for the same value of home loan, for the same tenure have different credit scores, one of which is a score of 780, while the other score is 670. As a result the person with the higher score not only gets the loan amount they had applied for, but at the most competitive interest rate, which brings down the cost of the loan and subsequent purchase. The person with a lower score can face one of two scenarios, that is, the possibility of the loan amount being downsized, hence the person would need to shell out a larger amount by way of down payment which is out of pocket, and second, the interest rate may be higher. This in the long run increases the cost, because you naturally pay more by way of the interest cost. In case of someone with a very low score, it is likely that the loan is rejected at the outset entirely, when even other factors may not be enough to act as mitigants.

How can you better your credit score?

Every time your credit card statement comes in, ensure that your payment is made on time, on or before the due date, and there is no delayed payment or even a missed one entirely. When it comes to other existing loans, make sure that in a similar fashion you make the EMI repayments regularly. Any slipup on either count can drastically impact your credit score negatively.

In conclusion

Remember that for your score to dip on account of bad credit behaviour does not take time, however when you wish to reverse the damage, the process takes a lot more financial discipline and patience. Instead of working backwards then, to improve a bad credit score, it is more prudent to work diligently to ensure that your score remains good and over a period of time, only gets better.

In India currently the use of credit scores is more or less restricted to the financial services industry, whereas overseas in most developed nations, the score plays an important role even when it comes to determining your insurance premium, the amount of deposit you would need to set down for a new phone connection, or even for a landlord to determine whether they would want to rent out a house to you.

Hence, it becomes obvious that the value attached to a good score today is too important to give a miss to, and hence to ensure a smooth financial life, there is nothing more critical than your credit information report, and the credit score thereof.

5 Things you Should Understand About Credit Scores

Knowledge is power, and power is everything. Did you know that just the three digits that represent your credit score can have a huge impact on the financial well-being? If you have been overlooking news and articles related to CIBIL score and creditworthiness so far, then it is time to finally learn about it. The more you will avoid learning about CIBIL, the more difficult it will become for you to get loans and credit cards in the future.

So, here are top five things that you absolutely must understand about credit score:

free credit report1) CIBIL Score and its Importance

Your CIBIL score is a three digit score that is provided by Credit Information Bureau (India) Limited, the institution that collects and maintains records of every individual’s payments related to loans and credit cards. The score ranges from a  minimum of 300 to a maximum of 900.

2) Things That Impact Credit Score

There are a number of things that can affect your credit score, and thus should be given due attention to. These are:

  • Late Payments- Late loan payments, and credit card bills payments, are the most common reason behind low credit score. A lot of people don’t take payment deadlines seriously, believing that it won’t make a big difference. However, the reality is that every single payment is of significance when it comes to your credit score, and thus should be always taken seriously.
  • Mistakes in Credit Report- Your credit score is mentioned in your credit report(provided by CIBIL), which is also important. If there are any mistakes or errors either in your personal details or the payment history itself, that are mentioned in the report, then it could lower your score.
  • Remarks and Comments: The lenders from which you take loans can leave remarks in your credit report, which can be detrimental to your score if they show you in bad light. If this is the case then to improve credit score you have to request them to get them removed from your report.

3) You Can Get a Copy

The access to your CIBIL report is not restricted to financial institutions alone. You can get a copy of your report as well. All you have to do is create an account on CIBIL’s official website and submit a few documents for verification purposes. If all goes well then they will either send a report to your email address, or to your residence itself. You just have to pay a small fee for the service.

While getting a copy of your CIBIL report is an optional service, it is highly recommended so that you can keep an eye on the progress of your score.

4) Other Credit Information Companies

Although CIBIL is the authority bureau on credit management and regulation in India, there are  3 other bureaus as well that work on the same principles. In some cases your financial intuition could choose to consider turning to these bureaus as well apart from CIBIL, when considering your loan or credit card application.

Here are the 3 companies other than CIBIL:

  • Equifax: Established in 2010, the company scores individuals on a scale of 1 to 999, and is known for its new technologies and services.
  • Experian: It also scores on the scale of 1 to 999, but takes longer to provide credit report. It also offers the most cost effective means, by offering credit report for just Rs. 138.
  • Highmark: Highmark scores range from 300 to 850, and offers unique solutions such as data quality management, and credit assistance, etc. Since the company is relatively new it has some really innovative products for modern banks and other financial institutions.

5) Difference Between Free and Actual CIBIL Report

A lot of websites these days are claiming to offer free CIBIL report, when in reality they are just misleading the people. What most of these websites are offering is an estimate of your Credit Score, and not the actual credit score. If you want to improve CIBIL score then you must always refer to the actual CIBIL report, and not the rough estimates.

By being informed on your credit score and credit report, you can make sound financial decisions easily. The points explained above can be of great help in that enterprise.

 

Should You Check Your Credit Score?

Credit score was something that was unheard till almost a decade and a half back.  Now it is not only discussed occasionally but it has become almost a necessity if one wants access to formal credit. If one were to approach any bank or financial institution for a loan the first thing that the prospective lender will do is get the applicant’s Credit Information Report (CIR). All financial institutes access the CIR when they want to assess a prospective client but you as an individual if you want to see how your credit health is or you want to know how to boost your credit score by looking at the grey areas in it then should you do it? Will checking you CIR have any impact on it? Is it a good idea to check your score? Well if you have any doubts the ensuing discussion is just for you.

 

Hard Enquiry V/S Soft Enquiry

To understand whether checking one’s credit rating impacts it in any way let us understand the difference between a hard enquiry and a soft enquiry. When a Financial Institution or a bank ask for the CIR of an individual it is known as a hard enquiry and as the chart alongside shows it has a 10% bearing on the score calculation.  When an individual checks his/her credit score then it is known as a soft enquiry and has no bearing whatsoever on the calculation. So checking your own score will not impact the credit rating unlike a hard enquiry; too many enquiries can impact the credit rating adversely. In fact one has the option of getting a free credit score also; you should check you score from time to time owing to the reasons explained in the following paragraph.

 

Why Should You Check Your Credit Score?

Now that we have established that checking your own score does not impact it negatively let us focus on why is it beneficial to check your own score periodically. Let us assume that you want to buy a new car during the coming festival season and you apply for a car loan; the loan application is rejected due to a low CIBIL score and you end up missing the special discounts.

Checking you score from time to time makes your prepared for a situation when you may require a loan in the future and beyond loans also if you apply for certain jobs. Yes! You read it correct a poor credit rating could hinder your job prospects too just like it hinders the borrowing prospects. Recently in their recruitment advertisement SBI had asked applicants to check their score before applying. If the rating is low due to some reason, being prepared in advance gives you sufficient time to try and increase the score and be ready to apply for a loan and a job too.

Accessing you CIR also gives you a comprehensive picture of your financial health. Thus beyond loans it could help you in financial planning and also course correction if you are too over leveraged, are late in making payments or there is some unpaid due which you have forgotten about. Looking at your credit report you get a summary of all your open loans, their remaining tenure and so on which can help you prepare for your future. Sometimes there may be an erroneous reporting in the CIR which may impact the score negatively although you might not be at fault. An occasional look at the CIBIL Score can warn you of such a situation and you can take timely remedial action.

So to answer the question asked at the start of this discussion; yes one should check their credit score. Checking you score in no way impacts it negatively; on the contrary it can help you by being prepared to deal with any situation and can also aid in financial planning.

3 Things Your Credit Score Needs

Credit Score is a three digit number but is sums up a lot of factors and reveals a lot of information. It offers a peep onto your credit history, your financial health and of course how responsible you are towards your debt. Five major factors go into making or breaking the credit rating; they are repayment history, credit utilization, loan tenure, credit mix and the inquiries made about your CIR. These factors ultimately decide what that three digit number will be.  So what are the three lifelines for a good CIBIL rating?

  1. Timely Payments:

This is one thing which one cannot ignore if they want to have a blemish free Credit Information Report (CIR) or want to improve CIBIL score. This factor impacts the calculation of the rating the maximum.  So the biggest favor one can do themselves is to pay on time, always! Paying on time cannot be a one of event, it is something that needs to be inculcated as a habit and discipline; one cannot do it for a few months and then go lax on it. Repayment history contributes maximum to the rating calculation and each missed or delayed payment is reported to the credit agencies. So be it the monthly credit card payment or the loan EMI ensure you are nor late in paying them.

  1. A Cautious Approach:

We all love new shiny things and that little plastic thing (your credit card/s) may look like a genie that we have in our hands. However if you are not cautious then that genie can quickly turn into a devil. Here I am not talking about only overspending which of course can cause problems but also about a high credit utilization ratio. While spending too much on your card can put you in a fix at the end of the month, a high credit utilization ratio can also harm your credit score. Keeping your credit utilization ratio below 40% will ensure that your CIBIL score does not take a hit. Credit utilization is the ratio of the average monthly spending on the credit card/s vis-a-vie the overall sanctioned limit for the card/s. Apart from that another area in which you need to exercise caution is; applying for a loan. Each time you apply for a loan the prospective lender seeks your CIR; this is termed as a hard inquiry and is reported to the credit rating agencies. Hard inquiries also lower the score. So apply for a loan only when necessary and after doing sufficient research about the lenders loan process so that your application is not rejected which will make you apply for a loan again and generate another hard inquiry.

  1. Stay Faithful to Old Debt:

If one has surplus funds you may think about repaying or that SBI Home Loan or that education loan from Bank of Baroda. However think before you do so! A long well serviced loan is good for your credit report. Deeper the credit history the better it is; so though repaying may sound like a good option but consider its impact on the rating. Similarly if for any reason you need to surrender one credit card if you have multiple cards then consider cancelling the newer one. Of course this needs to be done after considering all the advantages and disadvantages or you could keep both cards and use the older one occasionally and remember to pay on time. This way it will still reflect in the CIR.

 

The above are three things that can help you stay in good credit health; these are not the only ones but they are definitely on the top priority list. So follow the above and you will never have to worry about your Credit Information Report.