Credit scores are the new grading system qualifying you to apply for Loans. Every adult should maintain it. Though referred to in a credit report, both are different terms. The credit report records your credit history, the number of times you apply for credit, debt collection accounts, and public records.
On the other hand, a credit score is a number which relies on payment history without dues. Banks look at it before approving your Loan. Though it is a number, it is important in determining your credibility. The following are some facts you must know:
Factors influencing it
The factors influencing your CIBIL score include your payment history, credit utilisation, average age of credit accounts, and enquiries. Your credit utilisation ratio should be below 30%. The older your credit accounts, the better it is. It shows a long-term history of responsible financial management. Keep your credit enquiries minimal, as it affects your score.
Free access to credit reports
You are legally entitled to a free copy of your annual credit report. You can check it every four months. Most Credit Card companies offer access to credit reports as customer perks. If it is low, you can improve it by making timely payments and following other tricks.
Pointing out frauds
While the digital world is advancing, everybody should be aware of fraud. A quick tip to safeguard yourself is to check the credit report every four months. If you have unrecognised transactions or see a sudden dip in the score, you can report it to the bank to take immediate action.
Interest rate
CIBIL score check is necessary before applying for Loans. If the score is above average, you may get a Loan with a higher interest rate. The lower your score, the higher the rate. Raising your score by 100 points or more can greatly affect your borrowing, enabling you to save for the future. According to the parameters, a score of 750 to 900 is excellent.
Credit behaviour
Banks can see how you handle credit, from the different types of Loans you have applied for to the ones you are currently repaying. The credit score calculation involves the borrowed Loans and how you have used your Credit Cards. Banks can get an insight into your Credit Card usage, the credit utilisation ratio, and whether you have repaid your Credit Card bills and previous and current Loans on time without defaulting.
Repayment capacity
When you apply for a Loan, all banks check your eligibility and income. You are eligible for it only if you draw a certain monthly income. Since your income and credit scores determine your repayment capacity for the borrowed amount, it is one of the essential criteria during approval.
