Today’s era, people are very enthusiastic to know about the credit score, but the information remains incomplete due to lack of complete information in one place. This article talks about credit score in detail as well as how important it is for borrowers to maintain a good score.
A credit score refers to a score of 3-digits between 300-900 and credit information is given to the company based on information provided by individuals or companies. This credit score in turn is accessed by your potential lenders. It is considered by bankers and lenders to be one of the most important deciding factors.
What is a Credit Score?
A credit score refers to a number between 300 and 900 that reflects the creditworthiness of the consumer. Accordingly, the higher credit score, the better a borrower represents the potential lenders.
Credit history under a credit score is based on the number of accounts opened, the total level of loan and repayment history and other factors. Many times lenders use the credit score to evaluate the probability that a person will repay the loan on time.
A credit score is important because it is represented by the value or dependence of the borrower. A person has a direct relationship with the eligibility for the loan.
Importance Of Credit Score in India
In India, the Reserve Bank of India(RBI) has the rights to license the company to access and manage credit information. The RBI has so far licensed four companies to carry out these activities, which are as follows:
- CIBIL- Credit Information Bureau (India) Limited
- Equifax
- Experian
- High Mark
First in 2001, CIBIL started its activities and became the most popular credit information company in India. Additionally, the other three companies monitoring credit scores have their own scoring system.
One special thing in these companies is that if the credit history is six months old, then they score one in terms of no credit history or zero. Apart from this, these companies provide in-depth credit reports and credit scores based on credit reports.
What is CIBIL? How does it analyse the credit score?
CIBIL stands for Credit Information Bureau (India) Limited. It is one of the credit information companies, which is engaged in maintaining records of all credit-related activities of companies and individuals, including credit cards and loans.
Registered banks and financial institutions periodically report to CIBIL all credit-related activities. CIBIL issues the CIR (Credit Information Report) and credit score periodically based on the credit-related information provided, which serves to provide data to banks by helping banks filter out loan applications received during their business.
What Is The Credit Score Range In a Credit Score?
A credit score range in a credit score is a 3 -digit number that summarizes the activities of a person’s or company’s credit history. A credit score is between 300 and 900. It is important to maintain a high credit score in the credit score. The higher the credit score, the easier it will be for an individual or company to obtain loan approval.
The most commonly used scoring model has a credit score range of 300 to 900. Creditors set their own standards for which score they will accept, but these are general guidelines:
- A score of 750 – 900 is generally considered excellent credit. This credit score indicates that the party concerned is paying all dues on time. Given this credit score, it becomes easy to get a loan or credit card approval from the bank.
- A credit score between 650 and 749 is considered good credit. This score is considered good by good lenders and willing to offer loans.
- This credit score between 550 and 649 is appropriate. It states that the party concerned struggles to pay the outstanding balance and interest rates will also be higher.
- Scores of 350 – 549 are considered bad credit scores. This indicates that the party concerned (individual or company) is not able to pay the EMI on time. Getting a loan or credit card in this credit score range is difficult because looking at the credit score, it seems to indicate a higher risk.
- And, credit scores below 350 are non-applicable or have no history. If a person or company has not taken any loan or has not used a credit card, then there will be no credit history i.e. the credit score will be considered non-applicable.
Thus, a good credit score range increases the likelihood of a good deal on debt and credit cards.
Why do lenders monitor credit scores?
Lenders check the credit score to see the creditworthiness of the borrower, so that the lender can know which category the credit score range of the borrower is in. The lender will monitor the borrower according to the credit score range.
Some of the main factors are:
• Lender looks at credit history
• Find out the borrower’s ability to repay the loan
• To determine and understand whether the borrower qualifies for the loan
• To know about the risk and debt balance of the borrower
• To fix the amount for the loan and applicable interest
How to analyze your credit score?
Want to know your credit score check? Just read the following steps…
Step 1) Firstly, visit to https://www.cibil.com/ and have to log in
Step 2) Register to receive your annual credit score and online report.
Step 3) Then, You need to fill in your personal details such as address, PAN details, date of birth etc.
Step4) Click Submit after filling. After submitting the details, the applicant will receive an SMS and an email about the credit score.
Step5) Click on the link in SMS or Email. Then you will be directed to the CIBIL login page. And enter the email ID and password once sent.
Now you can see your credit score on the screen. The Reports tab will take you to your Reports section. Check account information for detailed reports and your credit history.
Conclusion
If you start monitoring your credit score, you will realize that your unwillingness to repay the loan or over-indebtedness increasingly affects your chances of getting a loan in the future. And you will become more specific about repayment of your loan and overdraft and avoid applying for additional loan.
Thus, it can be concluded that maintaining a high credit score is important as it ensures ease of obtaining loan or credit card approval. At the same time it would be more likely to get loan approval.