Why is it really important to know the credit score?  Wouldn’t you really want to know what the lenders think about you? What is a good credit score? What happens if this score is low? How to improve your credit score? What if it is a good score – how you can benefit? How do you get the issues resolved, if any, in your credit report? We will tackle all such questions in this blog.

Why is a credit score important?

When we apply for a loan – mortgage loan, personal loan, credit card or basically any liability, then while processing your loan application what the bank or finance company would do is to check your creditworthiness. They reach out to any of the credit monitoring agencies and check your credit score and report. It is one of the determining factors for approval (or rejection) of a loan or credit card application. If you have a good credit score, it can even help you in negotiating a good interest rate for your future loans! So, a good (or a bad) credit score follows you even if you change your residence, city or even country! It may be extremely difficult to get a loan if the previous credit history is bad.

Which are the credit monitoring agencies?

There are four credit bureaus in India monitoring credit scores and reports:

1. CIBIL (www.cibil.com) One of the most popular ones. Complex algorithms are used to calculate the credit score. Do check your score regularly and if you find any errors, work with them to get it resolved as those errors can magnify and impact you even later.
2. Experian (www.experian.in)
3. Equifax (www.equifax.com)
4. CRIF (www.crifhighmark.com)

In addition, there are intermediaries like Paytm, Paisa bazaar etc. who also provide the credit score.

What is the difference between credit report and credit score?

Credit score indicates your creditworthiness. A credit report includes your credit history, personal information along with details of your loan accounts and credit cards.

How to check credit score for free?

This is a three-digit credit score. You can get a free score from each of the above credit agencies, once a month. For CIBIL, the score is between 300 and 900, the higher the score the better it is. So, basically, if your score is bad, say lower than 700, then it can be very difficult to secure a new loan or the interest rate could be very high since the finance company perceives it as a higher risk.

How is CIBIL score calculated?

Various factors are used for the calculation such as credit history, credit utilization, credit mix and duration along with other factors. Various factors can affect your credit score like credit utilization limit, repayment history, unsecured loan proportion, Guarantor for someone, regularly requesting for increase in credit limit, looking out for loans periodically etc.

What do it if there is an error?

You need to submit a dispute resolution form with the necessary details with the agency. The credit bureau will then update your credit report after verifying the information from the lender.

What are some good practices which can help in improving/ maintaining a good credit score?

• Making timely and full payments
• Close unused cards
• Avoiding too many inquiries/applications for credit cards and loans
• Being cautious and keeping a check on your credit score and report regularly

What if you do not have a credit score and it shows as not applicable?

This would happen if you have never had any credit history so far. This will be especially true for students just starting to make a living or someone who has never had a loan or credit card in the past. In such cases, it is better to take a credit card. If you find it difficult to get a credit card (because there is no credit score – thus getting into a loop!), consider taking a credit card against a fixed deposit (banks would not have any objection there), continue to make full payments on time and build your credit history. You will then have a credit score soon.

To read more blogs like this on personal finance, please visit my website: www.financialradiance.com. Comments, if any can be provided here, or else you can also write to me at rajeshminocha@financialradiance.com.