An individual’s credit score depicts how one has handled credit in the past. Based on an individual’s past credit behaviour, which includes factors such as timely repayment of EMIs and credit card bills, as well as the number of credit enquiries made, a credit score is assigned. Lenders check your credit score before providing you with any credit. It is always advisable to know your credit score beforehand and check where you stand. You should ensure that you have a good credit score to avail credit. Moreover, you should take steps to improve your credit score if it is poor so that lenders find you creditworthy when you actually need credit in future.
What is a Credit Score?
A credit score is a 3-digit number ranging between 300 and 900 that portrays the creditworthiness of an applicant who intends to avail credit from a lender. The closer the score to 900, the better it is considered for credit approval.
The credit score is calculated depending on your credit behaviour such as timely repayments, recent credit enquiries, proper usage of available credit, dependence on credit, experience in handling various forms of credit efficiently, etc.
If you have a good credit score, it becomes relatively easier for you to get your credit application approved. Your cost of credit can also come down significantly apart from the relaxed terms that you may get from the lender. If you have not checked your score recently or haven’t checked your score ever, you may miss out on several pre-approved credit offers.
Whenever you apply for credit, lenders request your credit score from a bureau such as CIBIL, Experian, Equifax or CRIF Highmark. It is called a hard enquiry and is mentioned in the credit report as well.
But when you check your credit score through a credit aggregator, you do it to know your creditworthiness and not to apply for credit. It is thus termed a soft enquiry. Soft enquiries are not mentioned in your credit report.
A hard enquiry may have some impact on your credit score whereas there’s no impact of a soft enquiry on your credit score.
How can Tracking Credit Score Regularly is Beneficial
Conducting a soft credit enquiry regularly can have numerous benefits while we plan for our life goals in future or meet an emergency financial requirement immediately. Let us understand how making the habit of checking credit score regularly can be beneficial in the long run:
Helps you Rectify Errors in your Credit Report
Sometimes, errors in your credit report can reduce your credit score drastically. If not corrected on time, your credit application might get rejected due to this issue without your knowledge.
Checking your credit report once every month may help you detect any errors in your report that may have occurred due to administrative errors or financial fraud. In both cases, you can raise a grievance and get your report corrected at the earliest and be creditworthy in future.
Also Read: How to Track a Fraud in your Credit Report
Helps you Take Advantage of the Best Credit Offers Available
When you check your credit score regularly, you know your creditworthiness. This awareness can help you get loans at preferential interest rates and loan terms.
Online portals that provide free credit scores also offer pre-approved credit options. You can go through them to understand the loan terms and the cost of credit for each option.
You should compare available offers from various lenders to understand the offer with the lowest overall cost of credit. You can negotiate on the interest rate being offered, the processing fee, the foreclosure fee or other charges associated with the loan.
On comparing the loan offer most suitable to your requirements, you can make an informed decision regarding the selection of the credit provider.
Read More: How Credit Score Impacts Pre-approved Offers
Helps you Track Progress and Improve Poor Credit Score
When you check your credit score at regular intervals, say monthly or quarterly, you can track the development in your credit history if it is improving or deteriorating. In case there is a fall in your credit score regularly, you can check for factors that might be impacting your score and take timely actions to prevent further falls.
You can also deep dive into your credit report to understand how you can improve your credit score if it has been stagnant for some time now.
Multiple Credit Reports with Free Updates
Various fintechs and credit aggregators provide free credit reports to subscribers with monthly updates. When you subscribe to their portals, you get detailed credit reports and, many times, in your regional language, which is easy to understand.
Credit bureaus provide one free credit report every year as directed by the RBI. However, if you need the credit report regularly, you may have to pay a substantial amount for it.
Suggested Read: Why should You Check Credit Reports from Multiple Bureaus
Convenience at your Hands
Various credit aggregators and portals do provide regular updates as soon as your credit score changes. You can subscribe to the paid service and get input on improving your credit score as well.
You also get updates on WhatsApp and through email, making it almost impossible to miss out on any development related to your credit score.
It is always good to stay updated with the latest developments related to your credit score. Tracking your score regularly shall aid in building a robust financial future to meet your emergency financial requirements or fulfil your life goals such as buying a home, funding your child’s higher education, marriage, etc.
Note: An edited version of this article was published in The Hindu on 22nd April 2024.