Oct 23, 2013,16.59 IST
Impact of your credit score on financial planning
Understanding the growing importance of credit score is imperative to the success of financial planning. Financial planning is effective if one is able to utilize the available resources to the optimum level. As sources of income alone cannot always suffice the requirement of funding one has to look at alternatives of credit.
Bargaining for the best cost of funding is as important as getting the maximum return for a given level of risk for one’s savings. A person looking for credit can obtain lending at a competitive rate if he/she has a good credit score. Here is an understanding of 5 important issues regarding one’s credit score that can help a person accessing credit:-
1. What is a credit score and how important is it?
A credit score is 3 digit numeric value, ranging between 300 &900 assigned to a person based on their past credit history. A person with higher credit score has brighter chances of availing credit as lenders are more comfortable in processing their loan application.
A lower credit score can lead to denial of loan application. Even if a bank is willing to lend to person with lower credit score, it will be at higher rate of interest. This is known as risk-based price adjustment practice of lenders.
2. Who maintains credit score information in India?
Credit Information Bureau of India Ltd (CIBIL) in association with Transunion maintains the credit score of individuals and companies.
3. How can one access this score?
Individuals can access their credit reports directly from CIBIL. The credit score is given in a report popularly known as Credit Information Report (CIR). If a person is looking to avail credit then first trying to find their credit score can be a beneficial step. If a person has good score and installment repayment ability, then they stand at an advantage to negotiate with banks for a better interest rate.
4. How can one maintain a good credit history?
By following outlined steps one can enhance their score or maintain a clean credit history which is imperative to access credit and bargain for a good rate of interest.
Unlike past, these days a person’s credit history is linked through Unique Identification ID’s and PAN accounts. Financial information pertaining to a person’s credit is accessible to prospective lenders. In current scenarios understanding and maintaining a good credit history can aid in their future financial planning process.
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