With the increasing accessibility to internet we all come to know about few terms related to financial industry, loans, agreement terms and conditions and many more.
While applying for any loan or credit card the first thing is, do it yourself or the Bank/ NBFC will do for you, to check the credit score. What is a credit score? What is the perfect credit score? What should be the right score to be eligible for loan?
Let’s read on and find out the answers to the above questions.
A credit score is a 3 digit number given by the credit information companies that helps to track the risk taking potential of the consumer and to lower the bad debts. The credit score helps to determine the loan amount, credit worthiness of the borrower, interest rate, credit limit as well as it’s an assurance to be eligible for the loan process.
A Credit score is the first criteria to verify the eligibility for any kind of loan. The credit history is generated by the Credit Information Company as required by the Banks/ NBFC’s and the other financial institutions on monthly basis. Bad credit history or the low credit score leads to the rejection of the loan application. It is important to understand the factors and the effective measures to be taken to avoid the negative effects.
Now moving ahead, let’s understand what is the perfect credit score? What is the right credit score that makes you eligible to avail a loan? What can be done to achieve the dream credit score?
The credit score ranges from 300 to 900. Where the 300 is considered to be the lowest and a higher score moving towards 900 is the best (anything above 750 is considered to be the good score).
No doubt to say that I have met two people with an exclusive credit score of 850 and they proudly show-off their computer screenshots to prove that they have reached the zenith of credit scoring. However, many people are doubtful that even credit score of 750 or 800 is attainable, but certainly it is, says Atul Pareek, director Mudra Home.
After being into financial industry from so many years, I can say that less that 1% of the borrowers have a credit score of 800 or above. But how did those few people climbed to the top of the credit score of the mountain. Both of them say that it was a slow trek that was achieved by responsible debt handling.
Atul further says, after meeting them and having a close discussion about their credit score, that it is all about handling your credits or debts. Few of your credits rest over you whereas few credits are out of your control. Just like our education system where the teacher’s grades the students according to their course performance, your credit activities are also graded by the credit scoring models. So you may think to achieve a perfect credit score you must follow few things that you can aim to achieve the perfect score. However, situations are different and unique for everyone, so this may or may not work for you.
Here is what he suggests:
Get your credit report
You can always get your credit report after every 6 months to observe any faulty information due to delayed or wrong reports received by CIBIL. This can even be done online. To improve the credit score you need to be handy with your credit report on regular intervals to track you’re your bill payments, avoiding multiple loans, credit cards or any other new accounts and maintaining a healthy fusion of unsecured and secured loan accounts.
Maintain various credit accounts
Always have a balanced combination of revolving accounts like credit cards and non-revolving accounts such as a home loan or a mortgage loan to increase the credit score. Carrying lot of unsecured or only secured loans can negatively affect your CIBIL score as different credit handling reflects diversity.
Be realistic with your credit decisions
Activities like non-payments of EMI’s, increased credit limits, unutilized credit cards, settling your existing loans or even becoming a guarantor can badly affect your credit score. Non-repayments due to any reason make you a defaulter in a loan and, in turn, it becomes an obligation.
Keep a watch on your credit reports
Keeping an eye on your credit report doesn’t mean that you should check it every month. But this also doesn’t mean that you should not. You should check your credit report once or twice a year regularly. Website of Mudrahome allows you to check your credit score for free.
Do not max out your credit limit
The limit on your credit cards and other unsecured/ secured loans is calculated as per the income and the regular monthly expenses. To improve the credit score, you should not utilize the complete credit limit or go over the limit. Keeping your dues as low as possible will definitely help to increase your credit score with time.
Set up bill reminders if it helps
Try to pay your due bills on time and if you are late then request for a waiver. Though you may be regular in paying your bills before due dates but it is an important aspect to judge your credit history. So instead of giving an excuse of “I forgot” or reduce the possibility of late payments, it’s better to set up reminders.
Achieving a perfect credit score is not necessary but to check credit scores and reports regularly is. If you do not track your credit regularly, then you will not come to know whether your scores are heading in the right — or wrong — direction. Achieving a perfect credit score is an impressive benchmark to avail the best possible lending terms.