Avinash is having trouble getting a Housing Loan in India because his Credit Score is not Good. He had never heard of Credit Score in the past and now wants to improve his Credit Score.
These scenarios are very common today. The term ‘Credit Score’ or CIBIL Score is used interchangeably by all financial institutions whenever someone applies for a loan or credit card. Understanding the Credit Score, therefore, is essential to prevent any inconvenience while applying for credit from Banks or NBFCs.
What is a Credit Score?
A Credit Score is a generic benchmark of the financial discipline of a person. In other words, it is a numerical expression of the credit worthiness of an individual, though, the same also exists for business entities. An individual’s credit score is generally published by Credit Companies called Credit Bureaus, using their entire historical and current financial history. In India, there are 4 Credit Bureaus which provide one’s Credit Score, namely, CIBIL Transunion, Experian, Equifax and CRIF High Mark. The term CIBIL Score is used for the Credit Score being generated by CIBIL Transunion, however, similar scores are generated and made available by other Credit Bureaus as well.
How is a Credit Score Calculated?
A Credit Score is calculated using multiple dimensions of an individual’s financial behavior, including but not limited to, Payment history on all the loans (including Personal Loans, Consumer Loans, Housing/Property Loans and Credit Cards), Utilization on revolving trades like Credit Cards, Debt Ratios (total outstanding balance and income) and Credit Hunger (number of credit inquiries or applications submitted by individual to lending companies). Any adverse behavior on any financial trade leads to a lower score and vice versa.
What is a Good Credit Score?
Typically, all Credit Bureaus provide a Credit Score in the range of 300 to 900. To avail a loan, a score above 750 is considered good. Many lenders today keep a minimum Credit Score cut-off for approving a loan or credit card to an individual. Most Banks have a minimum 700 Credit Score cut-off in India, while there are alternate lenders like Qbera, which use alternate data in addition to Credit Score to provide loans to customers, and hence, are able to consider customers with Credit Score as low as 650. However, as a practice, one must first visit any of the Credit Bureaus’ website and check their own Credit Score before applying for a loan.
How to Improve your Credit Score
Credit Score is a dynamic score and it keeps changing based on most recent information provided to the Credit Bureaus. All lenders report the most updated information about all their customers to the Bureaus on a regular basis. Hence, to improve your Credit Score, one must start paying all the dues on time. Click Improving Credit Profile to get more information on how to improve your credit score.