Credit bureaus in India have been in existence since over a decade, yet many are not aware of them. The reason behind such low awareness regarding credit score utility and reports is low financial literacy. A score is a 3-digit number that ranges anywhere between 300 and 900 that indicates your repayment behaviour. Out of the many parameters that NBFCs and banks factor in while rejecting or approving your loan application is your credit score as this endows lenders with an idea regarding your credibility. The higher your credit score, the more NBFCs and banks will be interested in providing you with a loan as a higher credit score shows a lower loan default risk. Thus, a higher score is the major key to the approval of any loan while a lower score lowers your chances of availing a loan. To know your score, you can check online credit score platforms as they provide you with accurate scoring of your CIBIL, Experian, Equifax and CRIF Highmark scores. Having a good credit score of 750 and above is important. This is because credit score for credit card, car loan, home loan, and education loan is important to understand your eligibility chances.
Credit score indicators can assist you in better understanding the distinct ranges of credit scores –
In India, there are 4 credit bureaus that compute your credit score. These include –
CRIF HighMark
Experian
Equifax
TransUnion CIBIL
The basic purpose of such bureaus is to rate you and your business entity after analysing and collecting respective credit details and past repayment records. NBFCs and banks across the country massively use your CIBIL score from TransUnion CIBIL.
Your credit score is impacted the listed parameters –
Past repayment record – Credit bureaus keep thorough track of the monthly repayments of your credit card dues, loans, and other crucial credit repayments.
Credit utilisation ratio – It is the percentage of the credit used against your available credit card limit. It can simply be computed dividing your overall outstanding debt amount your overall credit card limit.
Credit history – Having a strong credit history over years assists you to enhance your score a few points.
Credit account types – Managing multiple loan kinds like unsecured and secured can positively affect your credit profile and score.
Credit enquiries – The number of times you or lenders enquire regarding your score even negatively affects your score.
Additional Reading: CIBIL Score Check Free Online Pan Number
How does your score impact your financial stability?
Your score affects your financial future in the listed ways –
Future loan approvals –
Your credit score and profile determine how credible or creditworthy you are to your prospective lenders. Whenever you place the application for a new credit option with any lender, the initial thing the lender often check is your credit score in your report. If your score is over the lender’s threshold limit, then your loan application may be approved. An excellent or good score shows you as a low-risk individual. However, if you do not hold the sufficient score required a lender, your credit application may be turned down instantly.
Faster loan processing –
Lenders consider your profile as low risk if you hold a good to strong score, which ultimately results in quick loan application approval. However, if your score is not on a good end, the lenders may factor in other parameters to analyse your credit risk profile, which may delay the credit process. Also, if you hold a good score, your chances of availing an instant or pre-approved loan offer also enhance.
Better terms and conditions on loan –
A score not only impacts your potential to take new credit options but can even impact the loan cost. When you hold a strong score, lenders may be interested in providing you with loans. This, actually, in turn, endows you the potential to negotiate with lenders on loan terms and conditions like interest rate, processing charges, other fees and charges, etc. However, holding an average or a below-average score might result in credit offers with an extremely high rate of interest.
Access to premium credit cards –
Like loans, a credit score for a credit card is really important. A strong score makes you eligible for premium credit cards that provide you with maximum cashback offers and reward points. Such credit cards generally have a higher credit card limit. Additionally, such cards even have a tie-up with various merchants, who can assist you to purchase a desired service or product at discounted rates. An average score may endow you with access to a credit card, but such cards may not turn out to be considerable for you.
Employment eligibility –
Most employers check the credit profile as well as the scores of candidates that they have finalised. Such a check is done specifically for positions that include direct contact with finances. The reason behind the evaluation of your credit score for employment is to ensure that no future complications come up. So, if your report indicates any missed or delayed payments, the employer may consider your credit profile as high risk.
Refinancing eligibility –
If you already hold a loan and require a top-up loan or looking to refinance your prevailing loan, the lender may consider your application only on condition that you repay your monthly dues on time and in full. Lenders generally avoid refinancing loans or offering a top-up loan when your score is low.
Saving potential –
A low score is an indication signifying that your dues are extremely higher as compared to your income. Also, it implies that you require paying more attention to your daily spending pattern to attain financial discipline. The inability to make monthly payments can make you borrow higher money, which may become an ongoing cycle and ultimately make you fall into a massive debt trap. In such a scenario, you may not be able to save up any cash for future goals. However, having an excellent score may mean you timely repay your dues in, which may make you avoid late payment fees and avail a loan with better loan terms and conditions. The money saved must be invested in distinct investment routes, which can assist you to form wealth over time.