We tend to believe that equipping our customers with the correct information plays a key role in customer service. An education loan is perhaps the primary step that the student takes on his road to monetary independence; thence we believe that a brief understanding of one’s credit profile is imperative.
A credit history is an assortment of all the pieces of financial data that is related to your life. It contains data on how long you have been maintaining your accounts, the boundaries related to it and how sensible your payment history has been.
This is very important to future and current creditors as this shows the benefit of the credit they provide you i.e. your repayment ability. if you’ve got handled your credit well in the past, that is enough proof of your credit behaviour in future. The credit report offers a snippet of your financial life. This arms financial organizations with the knowledge required to come to a decision whether or not they ought to lend or extend credit to you or not. Learning how to establish and maintain sensible credit can assist you achieve your monetary goals and future investments. Here is what you need to know.
What is a Credit Score?
A credit score is a numerical score that summarises your credit history and credit risk for lenders. If you’re applying for a loan, be it an education loan, home loan or any other type of loan including credit cards, the bank or investor will check your credit report and credit score to gauge your risk profile (i.e. your ability to pay back the loan) and judge whether or not they wish to issue the loan to you. In India, presently there are four credit bureaus that are tracking numerous customers and their credit use:
- Credit Information Bureau India Limited (CIBIL) – The oldest bureau in India that publishes the most widely used credit score (CIBIL TRANSUNION Score) and credit report.
- High Mark
Who has got a Credit Score?
If you have ever taken a loan (personal, auto, education, home etc.), or even if you have a credit card, or if you have bought products on EMI, you would have a credit history and a credit score.
What is a CIBIL Tans Union Credit score?
A credit score, in this case a CIBIL score, is a 3-digit number based on a snapshot of your credit history that helps a bank or institution determine your ability to pay back the debt. This score ranges from 300 – 900. This score plays a pivotal role in your loan approval. The closer your score is to the 900 mark, better are the chances to have your loan approved.
What is in your Credit report?
Your credit report contains the below mentioned data.
Personal: Name, Address, PAN no, Date of Birth and employment information.
Credit History: Types of accounts, the date you have opened the account, your credit limit, the account balance, payment history.
Public Records: Foreclosures, Garnishments, Legal Suits and Judgements, if any.
Enquiries: List of creditors that have accessed your profile in the past.
What is my credit score comprised of?
CIBIL scores are based on the following factors:
- Payment history: Looks at late payments and bankruptcies. These late payment defaults or no payments can hurt your credit score.
- Amount owed: Considers your total debt and your available credit limits. The more you owe compared to your existing credit limit, the lower will your score be.
- Age of credit history: Checks how long you have had your credit accounts and how often do you use them. A longer credit history will increase your CIBIL score.
- New credit: Looks at new credit accounts that you have opened and new credit requests (such as credit cards or personal loans etc). Multiple credit requests show greater credit risk
- Types of credit used: Considers how many credit accounts and how many instalment-type accounts you possess. A diverse credit portfolio can strengthen your report for example having credit cards and loans could portray a mixed bucket of your repaying capabilities
What is the benefit of having a Credit score and report?
Possessing a good credit score and credit history will result in several benefits for you as a consumer.
Faster approval of loans as the credit scores are readily available to the banks and any other kind of lenders. Home loans and auto loans that initially took weeks earlier, can now be approved in a single day for a person with good a credit score and credit history. Loan/credit approval decision are no more biased than looking at your city, gender, religion, family background, etc., banks and other lending institutions can focus on your personal credit report to decide about your loan application.
Who can view my Credit Report?
Only you and the financial institutions that you authorize (verbally or by a signature on the application form) for processing credits can view your report. However, in some cases, some banks check your report prior to giving you a pre-approved loan or any product of such sort.
How frequently should I check my Credit score?
If you have never checked your credit report/ score, you should do it ASAP for two main reasons.
First, checking your credit report will give you a brief idea about your current credit profile and what can be done to improvise on these scores.
Secondly, you can identify any issues in your report such as wrong information, any fraudulent activities such as accounts that you may not have opened, etc. and have that rectified before they damage your profile over the future course of time.
You can dispute any wrong information in your report with the bureau and get it rectified to improve your score. If you have accessed your credit report at least once earlier, it is recommended that you access it at least once a year to keep track of your credit score movement. Moreover, if you are trying to improve your credit score before a big loan application, it may make sense to start tracking it on a quarterly basis so that you could go ahead with necessary changes and improvisions to up your scores.
Does my Credit Score alone determine a lenders decision for the loan or credit card?
No, Credit history along with the lender’s loan underwriting policies determines whether or not you get approved for a credit card or loan. For instance, a credit score of 750 is also adequate for a financial organization to issue a loan, provided you meet their other necessities. On the other hand, another service provider might not issue a loan to you unless you’ve got a score of 800 or more. If more than 50% of your net income is utilized to pay off existing loans and EMIs, you may not get the loan approved irrespective your scores being high, as the additional burden of debt on you may probably lead to your inability to pay the loan on time.
What are Enquiries and how do they affect my Credit?
Each time you apply for a credit/ loan or any other form of a loan or a credit card, the creditor may obtain a copy of your credit history. This action is known as an enquiry and it is recorded in your credit history. Too many enquiries within a short period may have a negative impact on your credit history. Lenders may presume that you are trying to get as much credit as possible which may identify as if your spending habits is out of control (though this might not be the case).
How does an Education / Student loan impact my Credit score?
It can impact in both ways, i.e. if you have taken an education loan and are making timely repayments of the EMIs, it will help you in building a good credit history and CIBIL score. However, if you are late in paying the EMI and/or have defaulted, it will negatively impact your CIBIL score and history. Hence, if for some reasons you are unable to pay your education loan, please work speak to the bank or your lender to get an extension on the loan or change of terms of the loan which could help you in paying off the loan easily. It’s imperative that you pay the education loan on time, as it will impact your future loans such as a car loan, home loan or any other types of loan.
Does a Bad Credit History of Your Close Relatives/ Parents Affect me?
It may and may not, depends on a case to case basis. If you are financially dependent on your parents/relatives or they are acting as guarantors for your loan, any negative credit history related to them may reduce your chance of getting a loan.
How can I establish a good Credit?
Though these general rules are important to keep in mind, each loan provider has its own policies to sanction a loan which may vary case to case basis and the consumers past credit history. It is important to note that your score will begin to rise as you improve your credit history which eventually happens only after your maintaining a good repayment history
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