Credit Score | Make your credit score work for you

Credit Score

A credit score is a measure of an individual’s ability to pay back the borrowed sum of money. It is the numerical representation of their creditworthiness. A credit score is a 3-digit number that falls in the range of 300-900, 900 being the highest. Having a low credit score implies that the person has not been a trustworthy borrower. On the other hand, a higher credit score offers you several benefits and helps you at the time of getting a loan or a credit card.

When you apply for a credit card or a loan, lenders like banks and non-banking finance companies check your credit score to see whether you have the ability to repay the credit. If you have a higher credit score, you are entitled to receive preferential pricing and get discounts on the interest rate. Moreover, a high credit score gives you the additional power to negotiate for better rates of interest on loans.

How Does the Credit Score Affect You?

A bank or lender would check your credit score or report to review your credit management skills, based on the review, a lender may or may not give you a credit. If you have a poor credit score and you keep applying for credit, every reject will further lower your score.

If you have a good Credit Score, you can avail loans and Credit Cards faster and with ease.

Get The Best Credit Card - A good Credit Score may get you the best of Credit Cards. you can get a feature-loaded card and reap the benefits.

Quick Loan Approval - A good Credit Score works like an expressway for your loan application. Banks may approve your application quickly and readily

Better Interest Rate - With the backing of a Good Credit Score, you can bargain for a lower rate of interest on loans and Credit Cards.

Loans Made More Affordable - Loans come saddled with processing fees and many other charges. You can bargain your way out of some of these charges with a good Credit Score.

Credit Score Range

NA/NH: If you have no credit history, your credit report will mention that your credit score is NA (Not Applicable)/NH (No History).

300 -549:A credit score in this range is considered as a bad credit score. It suggests that you have not been a responsible borrower and have defaulted payments and have unpaid dues.

550-649: A credit score in this range is considered as average.

650-749: A credit score in this range is considered as good and lenders will consider offering you credit in the form of a loan or a credit card. However, you might still not be in the position to negotiate a good deal.

750-900: With a credit score in this range, lenders will be willing to offer you a loan with cheaper interest rates. A credit score in this range also gives you the additional power to negotiate for a better deal on interest rates and credit cards with better rewards and benefits.

Credit Score Computing Agencies

Credit Score is computed by Credit Information Companies. In India following four companies calculate credit score– CIBIL, TransUnion, Experian, Equifax and High Mark

When you make a transaction—the one that is relevant to determine your score—banks send details about it to all four credit bureaus. To send details to all credit agencies is a mandate by the RBI. Essentially, banks keep Credit Information Companies up-to-date about your monetary habits. If a bank needs to check your Credit Score, they can approach any one of the bureaus. It doesn’t matter which one because all will have the same score for you– all four are equally authoritative and on par with each other.

After receiving information from the bank, credit bureaus get down to the task of collecting more information about your financial habits from other banks and financial institutions. The credit bureaus then process this information to formulate what is called a Credit Report.

Though the processes followed to compute your score might differ from agency to agency, your Credit Score calculated by all will be the same. This is because banks intimate the relevant information to all four agencies. Therefore, no matter which agency a bank picks to check your Credit Score, there will be no major discrepancy in it.

Of the four agencies, CIBIL, however, is the most popular since it was one of the first Credit Information Companies to start operations in India. This has fuelled the notion that CIBIL Score is more accurate than a score from other agencies. This, however, is not true. Banks give equal weight to scores from all four agencies. Equifax, Experian and High Mark Credit Scores are as good to banks and other financial institutions as CIBIL Score.

Monitor your Credit Score

It is essential that you keep a close eye on your Credit Score. Another reason why you should track your score is to know if it dips, or if an error has been made by credit agencies while calculating your score. This will help you make timely amends

Factors which makes Credit Score Go Down

Being late on your credit payments
Entirely ignoring your loan dues/credit card bills
Creditors charge off accounts when credit card bills are not paid on time. The status of having your account charged off is one of the worst incidents that reflect on your credit score
Lenders use third-party debt collectors to retrieve the loan amount from you, in case they do not receive payments. Having your account sent to collections reflects very poorly on your credit score
Filling for bankruptcy can have a devastating effect on your credit score
Request made to close a credit card which has an outstanding balance, your credit limit drops to Rs.0
Closing old credit cards shortens your credit history. This has a negative impact on your credit score
Applying for multiple credit cards or loans within a short duration makes your credit score plunge. Hence, it is advisable to limit the number of applications
Having only one type of credit account will negatively impact your credit score. So, you should look to maintain a mix of loans and credit card debts and make consistent payments on time
If you fail to check your credit report occasionally and fix errors if any, your credit score can be hurt. It should be understood that credit reporting bureaus also make mistakes while creating credit reports. If you do not monitor and correct your report, it may cost you a lot in the future

Credit Reports

Credit reports are a summary of an individual's credit history. The report contains details of the credit and loan history along with other basic details. Most lenders (banks) use credit reports in making effective lending decisions. In a credit report, you will find information related to all types of loans and credit account, the report will also contain details such as the name, date of birth, PAN card number, address, etc. You can also find details related to the last credit report check performed by a lender.

Credit Report and Credit Score - How do These Differ?

When you apply for credit, the lender will assess two metrics that help them take a decision on your creditworthiness. These are your credit score and credit report.

Credit Report

Your credit report has information on the current and past credit agreements that you hold. These include mortgages, credit card accounts, student loans, and inquiries on your credit history

The credit report is a reflection of your credit management, and you have control over the listings there. The credit report gives an outline on how much you owe your creditors over an extended period of time, whether you have been making payments consistently, and for how long each account was open. The report also lists associated public records against you, such as court judgements, bankruptcy filings, etc.

In order to access your credit report, you can get in touch with credit reporting agencies or use a credit monitoring service that offers you this information

Credit Score

A credit score is similar to a grade that is provided to your credit report. It is a 3-digit number that usually ranges from 300 to 90

The credit reporting bureau assigns you the credit score based on your credit history

A high credit score indicates that you are a low-risk borrower, making you more likely to qualify for a loan

Your credit score is a part of the exhaustive credit report that you receive from the credit bureau