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.

 

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What are the factors which affect your CIBIL score?

It is not every day that you need to fix your mobile or television or AC or any gadget for that matter. If you follow the instruction manual, and if you are lucky to have a non-defective item, your gadgets will have a long life. Where exactly am I going with my talk of machines and gadgets? Well, the same principle applies to one’s credit maintenance. The credit landscape has advertisements on every bend that welcome you to take the ‘right’ turn with a score that is upwards of 700. Anything short of that, and you have to take more uphill roads to reach credit haven. So, let’s see how you can consistently stay on the right side of 700.

CIBIL gives you a score ranging from 300 to 900 based on a round-up of your credit history. If you have never approached banks or similar institutions for credit cards or loans, you do not exist in CIBIL’s database and you will not have any report to show lending institutions. So, while not having a good score is stumbling block when you apply for loans, not having a credit history is also questionable. It is not that much of an issue if you are salaried or have a steady income and you are approaching credit card companies for the first time. But, it does become a point of contention when your search extends to the best home loans in India. If you are going to be applying for it, your credit report from CIBIL will make the journey much easier. Let’s turn to the top factors to maintain a steady score, so you never have to worry about how you are going to get a loan for low CIBIL score.

Pay your dues on time

When you get your credit card bill for the month, do you stick to paying off all the credit that you have drawn the past month or do you let it roll over to the next month either out of forgetfulness or laziness or just because you have more important bills to pay off that month? If you are doing so, you are hurting your CIBIL rating badly. You would need to show greater financial discipline to score more. Banks exist to make money. They would be cautious about giving loans or cards to anyone who has a history of defaulting his/her payments. They wouldn’t want you to be their loss maker. In this context it must be stated that minor defaults – payments missed under 90 days have a temporary setback on the CIBIL score, while major defaults – those that are beyond a period of 9o days damage your score for a much longer time.

So, paying off dues on time is arguably the most essential trait that could give you a favourable score.

Utilize credit moderately

Every credit card that you have has a maximum limit that you need to abide by. However, that does not mean that you max out your card every month. Doing so indicates that you are credit hungry and lowers your CIBIL score. The other side of the story is that if you utilize up to 30% of your credit limit, you automatically score well in your CIBIL report.

Curb the urge to stock credit cards

Avoid the impulse to decorate your wallet with colourful credit cards – especially if you are thinking of applying for a major loan, like a land mortgage loan, in the near future. Lending institutions view this as an indication that you cannot live within your income and are over-dependent on credit. They are skeptical about your capability to repay any further debts. So, use your limits wisely and let that reflect in your score.

But, don’t be over-cautious about using credit cards

If you own plastic money, make use them regularly. Only be sure to pay the balance off on time (Advice #1). Does that contradict what we just said about using too many cards? Not really. The key to maintaining a healthy score is to using them without excess. Owing a credit card and not using it does nothing to your score. On the other hand, showing that you can keep your debts in control, by paying off dues every month gives you a healthy score. So, go ahead and keep your cards active.

No credit score? Should you be worried?

Not having a credit score can be a bit of a Catch 22 situation, as having a credit score will help you qualify for credit, but at the same time for someone with no credit to begin with, how does an individual get a score? This is especially difficult for a first-time applicant for a loan or credit card as the lender needs to establish their creditworthiness. What thenl is the solution? Where should an individual start?

Globally, credit information companies or bureaus are trying to break this hold to establish credit scores by using alternate information such as rent payment details and information from public records to help establish credit history. As on date in India, we do not have a similar practice, and having a credit history is the only way to pull up credit scores.

Why is a credit score important?

A credit score is a numeric representation of your creditworthiness and is the first piece of information a lender will view when you apply for a fresh line of credit, be it a bank or any other financial institution. The score helps them determine whether you are likely to default on a loan, or whether the loan will go ‘bad’. Typically ranging between 300 and 900, a healthy or good score can help you obtain a loan when you really require one. Often, it can be the differentiator between an application being approved or rejected. While a loan for low credit score is not impossible to get, it could mean a compromise in the loan terms and conditions, especially with regards to the rate of interest being offered. A good score is most likely to result in the most competitive rates.

Help! I don’t have a credit score! What do I do?

Even if you don’t have a credit score to begin with as of now, do not worry. Let’s take a look at the options open to you, in order to start building your credit score.

Secured credit card – This is a sound way to get started on building your credit history, and banks are willing to offer this product to their existing customers. The card is linked to a fixed deposit that you maintain with the bank, and if need be, dues are recovered by liquidating the deposit. Of course, if you are looking to establish credit history, make sure that all payments go out on time, with no delay and ideally in full. When done over a period of time, it indicates healthy credit behaviour, that the person is able to handle credit responsibly. This will help your score, and over time even increase credit score.

Become an authorised user – If you are finding it difficult to avail of a card in your name, consider becoming an authorised user jointly with someone (typically immediate family) who already has a credit card. The repayment behaviour will help you put together your own score, as the primary cardholder’s good payment history will appear on your credit report. If you do choose this option, make sure you monitor your credit report at regular intervals to ensure correct reporting is taking place.

Make small purchases – If you’ve held a card in the past and did in fact have an established credit line, you can look at ‘reviving’ it by making a small purchase on the card, which will immediately pull you back into getting a credit score. Remember, credit bureaus use algorithms to develop a score, and one of the requirements is a usage pattern which will come in only once you use a card. Hence to start off the process, make a purchase, but also make sure that you pay off the dues as soon as the card statement comes in. This information once reported to the bureaus will help you begin establishing a credit history.

In conclusion

Once you have credit, be judicious in its usage. Timely payments go a long way in making sure that your history remains good, as does the length of accounts you have open. Hence retain good ‘old’ debt if possible, as keeping an account that is for example a decade old will boost your credit score. To make sure that you do not fall into a debt trap – and this is very important for first-time users – do not sign up for more cards than you can manage. Further, do not spend more than you can comfortably repay, in order to set up what you had intended in the first place – a good, strong credit history that over time will work for you.

Once you have started building a credit score do keep in mind that it requires financial discipline in order to maintain a score and subsequently even boost it. Over a period of time it can be done, and in the long run will prove essential to help you stay financially fit.