Tuesday, 8 December 2015

All you wish to know about Credit Score/CIBIL Score

With the advent of credit bureaus in the country as well as the world over, credit history is a term that is fast gaining recognition, and has come to be known as the key to an individual’s credit health and financial future. While there are no ways to increase credit score fast, it can be achieved over a period of time with some financial discipline.

What is a credit report?
In order to understand what credit history is, let us first understand what a credit report is. A document that is generated by credit information companies, or credit bureaus, a credit report contains detailed information pertaining to an individual’s credit history. Hence, this data includes the type of accounts (whether secured loans such as a home loan or unsecured loan such as a personal loan or credit card) held by the consumer, the length of credit history and the payment pattern (whether there are any payment delays or defaults, for example).

The information in a report is not generated by the bureau but is based on information reported by its members, i.e. lenders and other financial institutions.

What is a credit score?
Based on the information contained in the credit report, a credit score is generated. This is a three-digit numeric representation of this data, typically between 300 and 900. A higher score indicates the consumer’s creditworthiness, and offers myriad benefits at the time of availing a fresh line of credit, including the most competitive interest rates and other terms.

Why is credit history important?
As mentioned above, credit reports and scores are based upon an individual’s credit history. If your repayment track record, for example, shows delays, it could indicate to a lender that the extending credit to the said customer may not be worth the risk. A step further, if your account(s) show default, or skipped payments, the damage to your credit health is more severe. In this instance, a lender may choose not to lend at all, as it is very likely that this customer is unable to handle debt well and may default on payments going forward in the future as well.

How can one maintain a good credit history?
Maintaining a good credit history while may be challenging, is not an entirely impossible task. For starters, do ensure that you make timely payments on any outstanding loan or credit card payment – any delays or not paying up altogether can drastically affect your credit score. If you find it difficult to remember to may payments on time, consider setting up payment reminders on your mobile phone or tablet. Alternately, you could opt for various payment options including standing instructions or ECS mandate from your nominated bank account.

When you use a credit card, be judicious in your spending patterns. Every credit card comes with an inherent credit limit – that is the amount assigned to your card, available to you for spending. The ideal credit utilisation ratio is 30 percent, which indicates to a lender that you are capable of using credit well. A higher limit may indicate that the customer is not solvent, and relies heavily on credit to meet possibly even routine expenses.

If you plan to apply for a new credit card purely because it seems to be attractive, don’t. Every time you apply for fresh credit, an ‘enquiry’ is made against your credit report. Each such enquiry brings down your score, albeit for a short period of time. Hence, make that application only if you really do require that additional credit, not otherwise.
Let us assume you have a credit card that you have been utilising well for a fairly long time – that is, you have not defaulted on any payments and your credit utilisation ratio is also healthy. Well, instead of closing such an account, retain it, because ‘good’ old debt can have a positive impact on your credit score. Of course, this account needs to be maintained well in order for it to work in your favour.

Last but not the least; consider credit counselling to get the perfect credit solution. It can seem to be an impossible task to achieve and then maintain a good or healthy credit score. With an unstable credit history, your score needs to be pulled up to a better level, and working with trained counsellors from credit health management companies such as Credit Sudhaar can be of immense help. With the right credit solution for each individual based on their financial ability, this can be the perfect solution to see improvement over a period of time.

Advantages of good credit history
When your credit history is strong, you not only wind up with further credit at the best possible interest rates, but it can affect other areas of your life too – this incudes employment, getting a postpaid mobile phone connection, and even getting a prospective landlord to lease you a house or apartment.
Hence, do try and increase credit score, and while there may be no quick-fix solution it can definitely be achieved.

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