Credit score is considered as the most important factor in depicting an individual’s creditworthiness and is based on credit history of the customer. Most of the consumers remain unaware of the hidden reasons that might be affecting their credit score negatively. Customers generally presume that their credit score is checked by lenders just to approve loans or credit cards, which is not true.
Interpreting Credit Score
Credit score is a 3-digit numeric that ranges between 300-900, wherein any score close to 900 is considered excellent, whereas score above 750 is considered good by banks and NBFCs. Anything below 750 is considered negative and may dampen your chances of availing a credit product. Credit score displays the creditworthiness of an individual and shows their repayment capability.
Credit score is generated by four renowned and respected credit bureaus worldwide which are named as TransUnion CIBIL (Credit Information Bureau (India) Limited), Experian, Equifax and CRIF High Mark. The credit score is generated by these credit bureaus by the financial data provided to them by various financial institutions, including banks, NBFCs, Governments, NGOs and other financial entities.
As per TransUnion CIBIL, “79% of loans or credit cards are approved for individuals with a CIBIL Score greater than 750.” Now let’s understand the credit score range set by credit bureaus to classify consumers in different grades:
|Credit Score Range||Grade|
Below discussed are the ways in which low credit score negatively impacts your daily life:
1) Impacts your Employment Opportunities & Career
Most of the employers check credit score and credit report of the job applicants, as well as the new joiners. Employers perform this check to know the financial responsibility of their employees or interviewees. Credit score is checked majorly by all the financial institutions where large amount of money is under circulation or handled. However, not just companies but even SMEs, and big business firms also do check credit reports of their new hires and existing employees.
2) Loans/Credit Cards at Higher Interest Rate
If in case your credit score is low, it becomes difficult for an applicant to get loan(s) at lower interest rates. Credit cards with additional benefits or perks are also denied to customers with low credit score. Any default or delay in the loan repayments gets recorded in the credit report of the applicant, which gets tracked by lending companies before any loan/credit card approval. On checking these reports with low credit ratings, lending companies become apprehensive in granting any loan or credit card to such applicants.
3) Renting a house
Landlords, property management and renting companies do perform a thorough check on the credit scores of their tenants to make themselves aware of their customers’ financial stability and rent payment capability. Good CIBIL score can help you rent the home of your choice without any compromise.
4) Lending products becomes dearer
Low credit score can make you pay extra for any lending product you wish to avail, such as home loan, life insurance cover, credit card, car loan, types of insurance, etc. Even various utility companies, cell phone providers and insurers do check your credit score. If they find it on lower side then they tend to charge higher fees and higher interest rates from their customers.
5) Credit Score takes years to improve
Improvement in credit score does not happen overnight, as it takes time. Sometimes it takes even years, if the credit score is really bad. Thus, it directly impacts the customer’s daily life by not allowing him/her to avail any fresh credit to meet their financial requirements. However, by maintain regular repayment history, borrower can gradually repair his/her bad credit score. People with no credit history are also impacted the same way, as it takes years in building credit history. Knowing the fact that it’s a long-term process, customers should not default in repaying any loan EMI or delay in credit card repayments.
Key steps to increase your Credit Score:
- Maintaining good repayment history
- Paying all bills on time and in full
- Maintaining low credit utilization ratio (30%-40%)
- Avoiding multiple or frequent loan/credit card applications
- Opt for unsecured loans, not secured loans
- Do not apply for fresh credit
- Avoid closing older accounts
- Avoid showing credit hungry behaviour
- Keeping regular check on credit report
To make your financial future more secure, it becomes necessary for you to regularly check your credit report. Periodic check of credit report provides you a better insight and understanding of the related components. It even makes you perform important steps to improve your credit score. Therefore, to check your credit score or to download your credit report at free of cost, you can simply visit paisabazaar.com. So do not just let credit score impact your daily life anymore by checking your credit score at paisabazaar.com, absolutely free.