Your credit fitness is the one thing that should be on the top of your to-do list, for a variety of reasons. And if you’re wondering why, let’s list down the reasons why you should be not just aware of your credit health, but also why you should monitor it on a regular basis.
Remember, every time you apply for a line of credit, the first piece of information that a bank or financial institution views when taking a credit decision is, how good or high is your credit score. This is because a credit score is indicative of your creditworthiness and may just be the make or break when it comes to your loan (or even credit card) application approval. Of course, there is no hard and fast rule that says that a lender will decline an application purely on the basis of the score, and while there are loans for low credit score in the market, be aware that these loans come at a cost – literally. For instance, not only will the rate of interest be less competitive if your score is low, but it may also mean a downsize of the loan amount you actually wanted. In both scenarios, what increases then is your cost of purchase, whatever is the asset.
And of course, the credit score carries the same significance (if not more) globally as well; given that the usage of scores goes beyond just loan and credit card applications. For instance, when you avail of an insurance policy too, an insurer at the underwriting stage is likely to determine the premium you would have to pay by assessing your credit score. Further, a prospective landlord too can check your score before deciding whether to rent out their home or not. In a similar fashion, even employers choose to check credit fitness at the pre-employment stage, especially if the job under consideration is one that requires the candidate to maintain high levels of integrity and security. Isn’t it apparent, therefore that your credit fitness practically rules your life?
How then should you assess your credit fitness? The first thing you should be aware of is the credit information report, which is a detailed analysis of your credit history, both past as well as information on any ongoing loans or card accounts you may hold. It is from this data that the credit score is derived, and a high score almost always yields better credit solutions. The first step to check how credit healthy you are, is to call for a copy of your credit report from any of the credit bureaus in India, namely CIBIL, Experian, Equifax and CRIF High Mark. Once you have the report with you, scan it carefully to understand what is mentioned therein. Check for accuracy of information, whether any data is old or incorrect and hence needs updating or modifying. If yes, it is not difficult to bring it to the notice of the concerned bureau to have it rectified. Remember that even the smallest piece of incorrect information pertaining to a loan or card account can wreck havoc with your credit score.
While every bureau may have their own credit score, i.e. the range may differ, the logic used to derive a score is similar. With CIBIL for instance, a score of 750 and above is good, of a possible 900. Anything lower than 600 is considered to be a low score and may not help when you require finance. Some of the major parameters that go into predicting a score include:
Hence it is important that to be able to keep track of your credit fitness, you focus on these aspects of the credit score, when you receive a credit card statement or a loan EMI is due, ensure that you make timely payments. Delaying or skipping payments entirely can have a serious negative impact on your score. Also, someone with a large amount of credit is likely to be seen as a person who requires the finance to even stay afloat, hence keep accounts to a minimum, opt for credit only when you really do require it. It is also good to have a healthy mix of both secured and unsecured loan products, as this gives a lender the perspective that you are able to handle credit well.
If you believe you require help to get you started, consider speaking with a credit health management company to determine your credit fitness. The bottom line is, whatever route you choose, ensuring that your credit health is optimal is non-negotiable.
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