A Credit Score is a three digit numeric which is summary of your credit history. There are about 30 different factors that decide your credit score. The value of credit score ranges between 300 -900. It is derived by using details found in the Accounts and Enquirers section on your Credit Information Report (CIR). It indicates the ‘probability of default’ of a borrower based on their credit history.
What role does credit score plays in loan application process?
Your score is one of the first checks that any lender does when they are evaluating your loan application. It is estimated that nearly 90% of loans are granted for individuals with score greater than 700. The higher the Credit Score, the better the chances of your loan getting approved.
So it is very important to have higher credit score.
How to check credit score?
You can get your credit score from organization called as CIBIL. Provide basic information and pay 470 Rs/- to get score. As per new guideline CIBIL provides free credit information report along with score once in a year. This report is your detailed credit history and full evidence of your credit worthiness.
What major factors affect my credit score?
Payment History determines 35% of your credit score. These include types of account you have, loan payment history, detail of late or missed payment.
Making late payments or defaulting your EMIs or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.
Outstanding debt determines 30% of your credit score. This means amount owed in different account on your name.
Credit history determines 15% of your credit score. This means how you have use credit and frequency of usage.
Pursuit of New credit:-
Pursuit of New credit determines 10% of your credit score. If you have recently been sanctioned multiple loans and credit cards, then lenders will view your application with caution because this behavior indicates your debt burden has increased increase, which will negatively impact your score.
Types of Credit in use:-
This determines 10% of your credit score.
How good is your credit score?
As discussed previously credit score is in range of 300 to 900. Higher the credit score better is chance for getting loan approval. If your credit score is equal or greater than 680 than it is said good credit score & your chance of getting loan approval is very high.
If your credit score less than 500 than it is bad news it is very difficult to get finance from market.
How to improve your credit score?
You can improve your Credit Score by maintaining a good credit history. This will be viewed favorably by lenders and it can be done with 6 simple rules:
- Always pay your dues on time
Late payments are viewed negatively by lenders
- Keep your balances low
Always prudent to not use too much credit, control your utilization
- Maintain a healthy mix of credit
It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.
- Apply for new credit in moderation
You don’t want to seem Credit Hungry; apply for new credit cautiously
- Monitor your co-signed, guaranteed and joint accounts monthly
In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder’s (or the guaranteed individual) negligence could affect your ability to access credit when you need it
- Review you credit history frequently throughout the year
Purchase your CIR from time to time to avoid unpleasant surprises in the form of a rejected loan application
For more information refer to CIBIL – FAQ GUIDE
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