What is a Credit Score?
A credit score is a three-digit numeric expression for your credit history. A credit score is primarily based on a credit report, information typically sourced from credit bureaus. In India there are 4 credit information companies licensed to operate namely CIBIL, Experian, Equifax, CRIF High Mark. The most popular of all is CIBIL credit score. This score ranges from 300 to 900, with 900 being the best score. Individuals with no credit history will have a score of -1. If the credit history is less than six months, the score will be 0.
Why Credit score is important for Personal Loan?
When applying for a personal loan, credit score is the first thing banks and financial institutions generally check for. Credit score generally depends on the repayments of personal loan, home loans, car loans, credit card bills. If all the repayments are done in a timely manner and no pending dues are left then automatically it will translate into a good Credit score, and would increase over time.
Banks and financial institutions generally don’t provide loans to applicants having low credit score or even they do they charge a very high interest rate.
It can also impact your ROI (rate of interest). If you have a good credit score, then you can always bargain with the Bank/Financial institution for the rate of interest on your loan. You could save thousands of rupees in repayments of loan if you have a good credit score.
You can also have access to better rewards credit cards with lower interest rates and you might even be offered checking accounts, investment accounts, and credit cards with signing bonuses. Having access to these financial deals may help you better manage your resources in the long run.
What are the factors causing a low Credit Score?
The following are the factors causing a low Credit score:
- Untimely re-payments of loans/ credit card bills.
- High utilization of Credit limits.
- Multiple rejected credit cards and loans.
- No credit history at all.
- Multiple loans at same time.
- Settling unsecured loans with banks/financial institutions at the lower amount than the dues.
In conclusion your creditworthiness is quite important to the lenders. If you have good credit score you are automatically benefited from it; but if your credit score is low, lenders may question your ability to pay what you owe. Improving your creditworthiness takes time, but it’s worth the effort.
