- HOW IT WORKS?
- Credit Score & Report
- Credit Bureaus
Credit Rating or credit score of a person is the ranking of a person on a standard scale measured by only three organizations nationally. The scores are based on the credit transactions of an individual either through banks, loans or credit cards. The scores indicate that how well you can meet your financial commitments. Lower scores indicate that you are not regular in returning the money that you have lent from a financial institution and higher scores indicate your punctuality and capability of handling the debt that you take.
The scores help when a person approaches a financial institution like a bank or credit card provider for loan or credit card respectively. The good score indicates readily that the person asking for loan or credit will pay it on time and diligently while a lower score indicates vice versa hence, giving an alarm signal to the lending agency that giving a debt to such a person could be highly risky.
The scores don’t start from one but range between 300 and 900. Above 750 is what a financial institute would like to see if approached for any sort of credit. Lower score, as mentioned earlier is risky and hence a likely indicator that you might not get the credit.
Let’s understand how are credit scores calculated and related doubts through a series of question and answers so that we may become careful and do not let them reduce.
1. How are credit scores calculated?
Credit Scores are calculated on the basis of credit taken by you from any banking or non-banking financial institution. It has nothing to do with your investments or assets. It completely depends on the credit taken by you either in the form of loan or credit card.
2. Who calculates credit scores in India?
Ans – In India, credit scores are calculated by only three agencies – CIBIL (Credit Information Bureau (India) Limited, Equifax and Experian.
3. Who provides information of credit to CIBIL and other agencies?
Ans – CIBIL, Equifax or Experian get this information from banks and financial institution, the common dot between all of them being your PAN Number. If you have been irregular in your EMIs or your credit card is mounting tall each day making you incapable of paying off your debts, then banks communicate this information to the Credit measuring agencies, which in turn impact your scores.
This does not need your involvement, or even if you wish you will not be able to affect the communication between financial institutions and credit measuring agencies as this is the way financial machinery works in India.
You should also remember that in case you have or are planning to approach a bank or credit card agency to settle your account by negotiating then this is bound to affect your credit rating adversely. As settling an account by negotiating indicates that you are not capable of making payments and hence will lower your credit rating.
4. What should I do if my credit scores are not good?
Ans – Good credit scores means being on 750+ in the range of credit rating. If due to any reason, your scores are not good then you will have to work hard to bring them into positive zone. This can take a couple of months but are necessary for a lot of reasons. Planning, strategizing and investing wisely should help. But be assured that the process will definitely take some time.
5. How can good credit rating help?
Good credit rating is especially beneficial in the following four situations –
- When you apply for loan
When you approach a bank or an NBFC for a loan, they ask the credit measuring agencies for your credit rating. If the credit rating is above 750 then only the bank or NBFC would agree to give you a loan or credit card, but if not, then they might reject your loan application or your credit card request. Too much trying to credit also gets reflected on the credit score card and can affect it adversely.
- When you apply for a credit card
The good credit rating can help you get credit cards with a lower rate of interest and higher limits while if the scores are not so good, first of all, the chances are that your application might get rejected. In case it doesn’t, still, you might not get to avail attractive interest rates, offers and higher limits.
- When you are applying for a job
Nowadays credit scores are asked for by potential employers as well. They ask for scores to assess your financial capability especially if you are applying in the finance sector.
- When you are planning to go on rent
Yes, you read that right! Nowadays, the landlords prefer to check credit scores of a tenant to know whether he or she will be able to afford the rent of the place or not. You might not get a place on rent if your credit scores are not good, especially in metro cities.
6. What are all the benefits of good credit rating?
Good credit rating i.e. a rating above 750+ in Indian scenario is definitely beneficial. Whether you wish to apply for a home loan, or your fifth credit card or a top-up loan, banking institutions will definitely welcome you and willingly offer you credit of your choice.
7. How to know credit scores?
Though there are several ways to know your credit scores, however, a detailed history can be asked for from any of the credit measuring agencies by providing them with your respective address and identity proof and by applying for the same online.
Nowadays, credit scores can also be calculated immediately online without any charges. To know the scores, you can also try the tools provided by CreditSeva. These will not only help you to know your credit scores immediately but will also help you to upgrade your scores with several tools in case your scores are low. Here’s a link, using which you can check your credit scores immediately and free of cost.
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