24^th April 2019

Borrowers beware of your Credit Scores!

We are at one point of time or other forced to borrow money  from others- be it individual, group or organization. When we borrow from organized sector like Banks and other Financial Institutions or NBFCs, it is always  necessary to ensure that the prospective borrowers  have a good rating of credit scores. The organized  lender always checks the credit scores of the applicants through the CIBIL (Credit Investigation Bureau India Ltd)  to find out the credit worthiness of the applicants by scanning the past record of financial performance and debit servicing etc., The organizations with whom there is a default of payment  communicate to CIBIL and register the details of  wrongdoing  and defaults. Bank loans, Credit card unpaid dues for long, term loan, personal loans, educational loans  and other loans in arrears etc., are finding a place therein which is available for any prospective lender to see and take an appropriate decision  to lend or not. This facility is made available for a small fee.

A good credit score of 750 plus would largely enable us to secure any loan-car loan, Home Loan, personal loan, credit card etc., One more advantage is that more the credit score less will be the interest  rate charged by banks and  FIs.  The following  factors are normally taken into account to determine  the credit score.

1. In respect of one’s existing credit lines , the repayment history  is being scanned to see whether the borrower  has been able to discharge his liability as per the terms of sanction-both principal amount and interest, EMIs etc.,  While prompt repayment of all committed loans and obligations would lead to strengthening the credit score, any defaults, settlements, late payment penalties would sink the score down. So at any cost keep the repayment on time as the highest priority.
2. The longer one has stayed disciplined with prompt repayments, the better it is for the credit score. So even when does not need a loan right now, establishing a small credit line like taking a credit card and use it sparingly but pay the small dues on time-this will keep your score very high. You are by this creating a good credit score record for you.
3. There is also another parameter to assess your credit score which is called the CUR- Credit utilization ratio. This indicates the total outstanding of loan liability vis a vis the total eligibility limit. For example if you have an outstanding of Rs 20,000 in credit card as against the limit of Rs 1 lakh, this ratio is 20 %. Any percentage less than 35 % is always preferable to get a good credit score which will lead to obtaining a loan easily.
4. The next important thing is a diversified credit mix/profile may help us to get a credit score. If you have successfully maintained and closed different types of credit lines like a credit card account plus a personal loan and a car loan, over a long period of time without any delay or default will help to get a good score.
5. Before submitting any loan applications, find out your credit score yourself by payment, then rectify the deficiencies if any and ensure that scores are modified by the Agency by suitable amendments through the FIs.

So be a wise borrower and keep track of all commitments and ensure prompt repayment.