Be credit worthy always- Business News
facebooktwitter

Be credit worthy always

Maintaining a credit score is important for getting a loan easily in the time of need.

  • December 3, 2015  
  • |  
  • UPDATED   14:39 IST
Photo: Thinkstock
Photo: Thinkstock

It is aptly said that 'If you think nobody cares that you are alive then start missing one of your car or home loan EMI'. It sounds phoney for our life but very true for our healthy financial life. Our month-on-month loan related EMI payments (home, personal, automobile loans and others), credit card or overdraft payments what define our credit report. Let's try and understand what actually a credit score is and how it impacts our financial life.

 

What is a credit score

A credit score is a number that summarises the historical credit information on a credit report of an individual. It helps lenders decide how likely it is that they will extend a loan or credit to the individual. One's personal credit score is built based on their credit history. Mainly, the credit score could range from 300-900. While each bank will have its own credit scoring cut-off based on the credit sanctioning policies, it has been observed that most banks are lending to consumers with a credit score of 750 and above.

 

How can one build a credit score

Some factors that may affect credit scores are:

  • Always keep in mind the number of late payments. Pay all your outstanding dues and EMIs.
  • Pay your loan EMIs and credit card bills in full regularly.
  • Review your credit history regularly to check the updated status of payments on your report.
  • Do not apply for more loans or credit cards until your report improves.
  • Monitor your co-signed, joint accounts monthly.
  • Monitor the loan accounts for which you have stood as a 'guarantor'.

Importance of a good credit score

A good credit score is important because it indicates that you are managing your loans and credit card relationships well. Some other factors are:

  • Access to credit facilities A lending institution takes decision-based on the credit well-being of the borrower. And since the score depicts the credit worthiness, a person may not be able to get approval on a loan application in case the score is low.
  • Higher rate of interest One with a low credit score may get the loan but he or she may be charged a higher rate of interest. This would directly translate into a higher EMI.
  • Help lenders assess risk of lending A credit score is used to determine whether you can get credit in the form of a credit card, a loan to finance your education, a home or car loan, or even to start a new business.

Institutions to check your credit score history

India has four credit bureaus. All these are approved by the Reserve Bank of India and extend credit reports and credit scores.

  • CIBIL
  • Equifax
  • Experian
  • Crif Highmark

So, it is important to understand and evaluate these factors to be able to build one's credit score and lead a healthy financial life.

 

Dos and don'ts

  • One must pay all dues on time.
  • One should not be over-leveraged. The person should take credit facilities only to the extent it is required.
  • A credit facility should not be taken for regular expenses.
  • Monitor your co-signed, joint accounts monthly.
  • Review your credit history regularly in order to track your financial standing and be 'loan ready' always.
  • Maintain a healthy mix of credit


Expert view

"Maintaining a good credit score can have a significant impact on one's access to credit. As the consumer or market matures it also translates into a lower cost of credit for individuals with a better credit score."

Mohan Jayaraman, MD, Experian Credit Information Company

"Credit scores can be compared with physical health. Similar to the fact that physical health cannot be built overnight, building a good credit score also takes some time and effort."

Gaurav Wadhwani, Co-founder, Credit Sudhaar

Follow the writer on Twitter @kaursarabjeet