Financial institutions check your credit score before extending you a loan. Apart from common mistakes, here are some moves that affect your credit score. So, beware!
TOO MANY CARDS
Bankers won't like it you if you are 'credit hungry'. Applying for too many loans within a short period or having too many credit cards may spoil your chances of getting a loan. "Frequent enquiries for finance are considered alarming," says Sumit Bali, executive vice-president, Kotak Mahindra Bank. This is because it is a sign of desperation. So, make sure there aren't too frequent or too many entries in the enquiry information section of your credit report.
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If you have been recently sanctioned a credit facility, your outflow towards equated monthly installments (EMIs) or credit card bills are likely to rise. This will have a negative impact as well.
"Access to multiple lines of credit, which may include unused credit cards, also impacts the score as it signals over-indebtedness," says Sriram Kalyanaraman, director, business and product development, Equifax Credit Information Services.
GUARANTEE WITH CARE
Don't be surprised if your application is rejected if your friend did not repay a loan you stood guarantee to.
Credit information bureaus classify ownership of a loan, that is, the responsibility of repaying, into four categories-single/individual (you are solely responsible for paying), joint (you share responsibility with someone), authorised user (when you have access to credit but are not responsible for paying, as in add-on credit cards) and guarantor (when you guarantee to honour the obligation if loan taker cannot repay).
So, if you have guaranteed a loan and it hasn't been back paid on time, it will impact your score. Keep track of add-on credit cards and monitor joint accounts as the other holder's negligence can impact your access to credit.
Frequent use of full credit card limit will be a red flag for lenders. The figure appearing under Current Balances of the 'Account(s)' section of your credit report helps the loan provider evaluate whether you'll be able to pay additional EMIs. A lower balance means you have a better chance of repaying the loan.
WHAT'S YOUR SCORECredit score is derived from the 'accounts' and 'enquiries' sections of your Credit Information Report. Different credit agencies have different marking systems. For instance, CIBIL's scores ranges from 300 to 900 points while Equifax India's ranges from 1 to 999 points.
The closer your score is to the upper limit, the better. Sometimes, one may get a score of NA or NH, meaning you're either new to the credit system or you're in the ownership category where you have access to credit but aren't responsible for paying back the loan.
Some lenders may hesitate to give you a loan if you don't have a credit record. A good way to manage this is to apply for a Secured Credit Card.
READING THE REPORT
This is the information that identifies you. This includes your name, date of birth. gender and your identification details such as Permanent Account Number (PAN), passport, driver's license, voter ID etc
Your present and past addresses, telephone numbers, e-mail addresses etc appear in this section. The most recently reported information will appear first. Keeping this section up-to-date is very important.
Contains details as provided to the credit bureau by lenders that you have existing credit accounts with or to whom you have applied for a loan. The most recent information on income and employment is displayed.
A snapshot of all your credit relationships along with a month-on-month record of payments for up to 36 months. The name of institutions that have provided you the loan, type of credit facilities availed, the ownership of the loans and details of loans are included.
A list of the lenders that have viewed your credit report for assessment of your loan application. It shows the name of the lender, date of application and the type and size of loan that you applied for.