How Important is your Credit score?

In modern world of banking, to help banking and financial institutions to better evaluate the credit worthiness of a customer, Credit Information Bureau (India) Limited and Transunion Score launched the credit score solution. The Cibil – Credit Information Bureau India Limited is accumulating all your card payments records and your defaults and maintaining records of all major banks.

How Cibil works?
CIBIL evaluates every customer on the basis of CREDIT SCORE . A credit score takes a snapshot of a consumer's credit report and through advanced analytics turns the information into three-digit number representing the amount of risk a consumer brings to a particular transaction. A credit score is a number between 300 and 900 that sums up a customer's credit record. It is inversely related with the risk of a borrower defaulting on repayment for more than 91 days. This means that every time you pay late on your loan EMIs or your cheque bounces on loans, all this is getting recorded and deducting your scores. Any of the payments you don't make on Credit cards is making sure that you don't get a loan or Credit Card in future.

Your Credit Score reflects your credit History
For the first time in India, Credit Information Report (CIR) containing factual records, credit histories of borrowers are available. Credit grantors across the country can now access reports from CIBIL in order to make quick, objective credit decisions. When you approach a credit grantor for credit, your application will be evaluated on the basis of your past payment history, existing credit lines and other factors such as income and security. In this case, a good CIR is one of the best indicators of the level of risk you present to the credit grantor. A CIR that reflects a good past payment history may lead to credit being granted on better terms. On the other hand, a CIR, which indicates that a borrower has been delinquent on several occasions, could lead to denial of or extremely expensive credit. In order to ensure a high-quality CIR, it is important to re-pay your loans on time. However, as you accrue more debt, special efforts are required to ensure this. The 'buy now, pay later' mindset has left borrowers struggling to strike an adequate cash-flow balance. In this scenario, it is extremely important for you to maintain appropriate, reasonable and affordable levels of credit and ensure regular and timely re-payment of loans.

Advantages of good Credit score?
• You will be required to furnish fewer credit documents
• Turnaround time for your proposal will be faster
• You would also get a lower rate of interest

How Can I improve my Credit score?
Improving credit scores is the single most effective way to ensure that your financial future will be filled with happiness and contentment, instead of stress and insecurity.
• Immediately establish a budget in order to control your cash outflows.
• Ensure that your income level permits an additional monthly outflow if you plan to take a loan.
• Investigate your options in order to reduce your interest and other credit related costs, e.g., refinance an outstanding loan at fixed interest rates if there is a significant drop in interest rates or you discover a significantly cheaper option, etc. This will make your debt burden easier to manage.
• Use some of your savings to repay some of your debt.
• Make sure you understand why you have a bad credit score and work on fixing those specific problems.
• Always pay on time.

So thumb Rule is - be disciplined about your finances. The most important thing about the score is that it will factor in how you manage all your lines of credit. Make sure you pay the dues on time and if you happen to be a first-time borrower, never over-leverage yourself. The more debt you pay off, the wider that gap and the better your credit score.

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