- HOW IT WORKS?
- Credit Score & Report
- Credit Bureaus
Credit Information Bureau Limited is commonly known as CIBIL and is the first company to give credit information. It maintains the records of all credit related bustle of both individuals and enterprises including loans and Credit Card payments. These records are submitted to CIBIL by the banks and the other financial institutions on a periodic basis. It is based on this, that CIBIL issues its report called the Credit Report or the CIR (Credit Information Report), and in turn, gives individual and companies a Credit Score.
What Factors affect CIBIL Score?
While all of us know that the most important factor that determines the Credit Score is the repayment history. The payment track record forms 30% of the Score. If you make all the payments on time, then you would surely have a good credit score. The other factors that determine these scores are:
1. Average timely payments: The higher the percentage of timely payments the better the score.
2. Negative Marks: Foreclosure, defaults in payments, past status of loans is another crucial factor. A negative score here indicates that the credit was not adequately managed.
3. The length of Credit: The more history you have, the more assurance banks get. So, if you are new to the Credit game, there might be an initial glitch by the banks as they do not have sufficient credit history.
4. Number of Enquiries: This is when the potential lender assesses the CIR to verify and determine if you qualify for the loan. Multiple hard inquiries might reduce the credit score as it implies that you are applying to several lenders to improve the credit score.
Well, Credit cards are no more a luxury and the thing for the rich and the happening. With the features and advantages, they provide, they are slowly becoming the rage amongst the youngsters. Credit cards are now a vital tool if used wisely. The usage of which improves the credit rating, if you have a low credit score Credit cards are for you.
Applying and getting a Credit Card is now relatively simple and requires only two documents and the application is approved without much delay. The two most important documents are the PAN card and the identity proof. Now once these documents are submitted the application goes through a CIBIL check.
The minimum score required is generally between a 300-900. A good score is anything higher than 700. Most of the Indian banks follow the similar pattern of approving the Credit Card a CIBIL score of 700-750 is considered good provided you meet all the eligibility requirements.
Bad Credit Score and Credit Cards
Most of the issues are vigilant and refrain from giving a Credit card to people with bad credit score as they fear delayed payments or default payments. However, there are instances when you might have been forced into negative payment like a medical emergency or loss of employment or another such crisis. In Such cases, the Bank offers secured credit cards.
Secure credit cards are offered against a fixed deposit. In such situations in the event of default or delay, the amount is recovered from the funds a cardholder has it in FD. By making regular and prompt payments, they can rebuild their credit history. It is important to remember that Credit Card is a small plastic card and one must beware of credit card frauds. There are millions of scammers waiting there trying to use this tool of yours for their benefit.
Benefits of Secured Credit Card
1. It helps you build a positive Credit History and in turn improves your chances of getting a loan in future.
2. There is no income proof requirement and so even a low salary individual can apply for this card.
3. Many of the banks do not have the minimum deposit requirement, of course, the more you spend the better is the credit history.
Credit Card Frauds
1. My friend Joe applied for a Credit Card, and he happens to change his mobile number and also move to a new house. What he forgot was to update this information in his bank. Not updating these details meant that any transaction or fraud happening through his account would not be informed to him. His credit card was used for an amount of 75000 without his knowledge, and he only came to know when he went to the bank to get these details updated later.
2. Another friend of mine Joey was stressed and did not realize that he was letting out valuable information through email. He was unaware that banks never email for any such information that is sensitive. The details are meant only and only for us and should not be shared with anyone especially over message or email.
3. My distant relative Mike was in doubt when he used his card at a bar. He instantly went to the bank and got his card replaced. When in doubt, you can ask the bank to replace the card. It is better to be safe than sorry, right?
4. There might be instances when you fall for a fraud unknowingly. My brother’s card was misused, and he informed the same immediately. The onus of the payment is put on us if we do not inform them in time.
It becomes imperative to explain why the credit score is low if there is a reasonable explanation for having a bad score you will have better chances of bank approving your credit card application.
The above method of getting a Credit card in spite of having a low CIBIL score does not take away from you maintaining a good credit rating hereafter. Credit rating is important even when you want to apply for a personal loan. Timely payments and no default are what it takes to maintain the score. A person with no credit history is treated differently than the one who defaults.
Credit card lends you money for 45 days, which in other words mean that whatever is used must be paid in 45 days. It is important that you have sufficient funds to pay the bill in 45 days. At least a part of it, all in all using it as a medium to postpone payment is not an excellent option. On the contrary, using it wisely to increase the credit rating is a fantastic choice.
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