Credit Score: All you need to know

In the world of finance, credit plays an important role in meeting our wishes. Be it the dream of owning a big car or a house of one’s own or simply making improvements in your house, you name it and it gets realized with the help of credit from various financial institutions. These days owning an expensive smart phone has been possible for everyone due to availability to cheap and easy credit. But getting loans easily is not true anymore. Lenders no more look at your earning capacity alone but also factor in your past repayment track record in the form of a credit score before making any kind of decision. In such a scenario associating one’s name with a bad credit score may prove to be disastrous.

Feb 20, 2015 02:02 IST CreditVidya Rajiv Raj |

Are you planning a loan to buy a house of your dreams or replace your old car with a new sedan? These days it is a precursor if you are planning on a loan in the near future unless you want to be shocked with an end moment rejection. Credit score takes into account the credit history of the individual and predicts his willingness to repay the loan on time. Banks and lenders evaluate customers based on their ability to pay and their willingness to pay. Ability is your pay cheque, while willingness is your credit report and score. A higher score implies better chances of getting credit from the lenders.
 
When it comes to credit score only Cibil score comes to our mind and everyone wants to have a good Cibil score. In reality, there is not just your Cibil score alone. In fact there are other three credit scores that convey information about you which come from other three Credit Bureaus in the country. Apart from Credit Information Bureau of India Ltd. (CIBIL), there is Equifax, Experian and Crif High Mark. As of now almost all credit bureaus provide score ranging from 300 to 900. But the fee to access the credit scores differs across each credit bureau. While you can access Cibil report and score by paying Rs 470, you have to shell out Rs 400 for report and score from Equifax. The later also provides an option of accessing its credit report four times a year for a payment of Rs 1000. Experian, on the other hand, makes you the credit report available at just Rs 138. The payment options range from demand draft to NEFT (online payment).
 
Higher the score, the better it is. Though this is definitely true, it’s up to individual lenders to decide their acceptable level of risk. Depending on their risk appetite, they decide their credit score cut-off for accepting a customer’s loan application. Also, what may be considered as a bad credit by one lender may be perfectly acceptable to another. For instance, a loan approval by one lender, might require the minimum score to be 750. Another lender might require 700 or lower. Therefore, if one lender does not accept your application on the basis of your credit score it is advisable to check with another one who might accept it. However, remember, lenders offering loans at lower credit scores, generally offer loans at a higher rate of interest. Hence a lower credit score may still get you a loan but it could work out to be a costly affair.
 
At present, the lenders report the credit history of their customers to all the four credit bureaus but they access only the Cibil report to make the decision. You must be wondering why? Cibil was launched in 2004 and has credit data on individuals from then on, while the others started operations in 2010 and do not have that advantage. But this may change in the future as lenders start accessing credit scores from more than two credit bureaus to make their decision regarding loan approval. Therefore, it is important to access your credit score from multiple bureaus. If your credit score is high across different bureaus, it will act as a double confirmation that you are a disciplined and a good customer and therefore worthy of a loan at an attractive rate of interest. The idea to check your report across all bureaus is that to be sure the information within all of them is consistent and error free. The good news is that like Cibil, you can raise a dispute resolution with the other credit bureaus as well in case you come across any discrepancy in the report generated by them.
 
So, what are you waiting for? Get hold of your credit score from all credit bureaus and fulfill your wishes more economically.
 
The author is Co-Founder & Director, CreditVidya.

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