Improving your credit score is critical not only for gaining loans but also for getting them at the right interest rates.
The following article is an initiative of Credit Sudhaar and is intended to create awareness amongst the readers.
When Jatin Khurana (name changed on request) applied for a credit report, he found that he had a credit score of 676. That's not a good enough credit score for obtaining a home loan from one of the private multinational banks. Khurana’s loan application got rejected after which he had to approach a non-banking financial company (NBFC) for a loan. While the latter did sanction the loan, it came at a higher cost. While the private bank would have lent to Khurana (if he had qualified) at around 10.25%, the NBFC was willing to lend at 11.25%. In other words, he would have to pay 100 basis points more in interest cost. On a loan of Rs. 50 lakh over a 20 year period, this 100 basis-point difference would cost him Rs. 15 lakh extra in interest cost.
Before applying for a big-ticket loan, a borrower should first apply for a credit report and score. You can get your credit report and score for free from freescoreindia.com . The credit report summarises whether your credit credentials are sound or poor. The credit score, which report also contains, is a numerical representation of the quality of your credit history.
A person’s credit score can range from 300 to 900. A score between 750 and 900 is deemed excellent; 675 to 750 is considered good; 600 to 675 as average; and a score below 600 is regarded as poor. Whether you get a loan at all, and whether the interest rate at which you get it is attractive, is determined by your credit score. If your credit score falls within the poor or average category, you need to take a few steps to improve it before you can apply for a loan.
Steps to improve your CIBIL score
The first step to take is to improve your payment history. If you have taken loans and are falling behind on your EMIs, rectify the situation immediately. Also, if you have paid off a loan but your bank’s records mistakenly show that there is still a loan outstanding against you, get the situation rectified immediately.
Beyond these basic steps, however, you may need to seek the help of a professional agency like Credit Sudhaar to improve your credit score. Altogether 72 parameters go into calculating your credit score. There is no absolutely good or bad behaviour. To raise your credit score, what you need to do is find the right balance. Professional organisations like Credit Sudhaar can help you achieve that balance.
Besides repaying your loan on time, be cautious about not overusing your credit limit. If your credit card has a limit of Rs. 1 lakh, avoid using this limit to the hilt. Be judicious in terms of extent of credit limit utilised. What is a judicious level will vary from person to person.
Second, have the right mix of credit. Make use of both secured and unsecured loans. Relying overwhelmingly on only one category of loan may bode ill for your credit score.
Third, avoid shopping around endlessly for credit. Every time you apply to a bank for a loan, the latter in turn makes an enquiry with the bureau. Too many such enquiries signal credit hunger on your part, which in turn augurs badly for your credit score. If you do shop around, do so in a subtle and intelligent manner.
Four, don’t own too many credit cards. The right number will vary from person to person, depending on his income, demographics, socio-economic status, etc.
With professional help, Khurana was able to move his score up to 777. His loan got refinanced with a prominent bank at 10.10%, thus in effect enabling him to save Rs. 15 lakh.
With risk-based pricing of loans becoming a reality in India, the three digit number, which is your credit score, can have a six digit impact on your life. Do get a good credit score if you want to get loans easily and at a lower cost.