In India, lenders watch the credit score keenly when it is about lending to an individual. So, you must know what your credit score is and the ways to ameliorate it. The loan is provided by a lender to a borrower in whom the lender has complete confidence. A credit score system attempts to measure your chance of repaying your debts on time. Judicious use of past borrowings, disciplined approach towards finances, good credit score, etc., are the aspects that are examined by the lender.
Note that credit rating agencies in India provide credit reports and credit scores to all financial institutions. CIBIL bureau of India is a credit rating agency that receives information regarding credit cards and loans with the assistance of its associates, which involve lenders and important members of different credit institutions. The info is generated for efficiently forming a credit report, which is nothing, but a document created by the credit bureau that majorly captures in-depth info linked with individual credit history.
CIBIL score is a 3-digit numerical representation of your personal credibility. It generally falls between 300 and 900. CIBIL score plays a crucial role from an individual’s viewpoint and the lender’s point of view. A credit score assists in monitoring your repayment track history, whether it’s the chances of defaulting on repayments or delaying them.
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If you have a good credit profile, then this may be beneficial for you in the following ways –
Instant loan approval without any lengthy procedure –
A strong credit score allows you to get quick loan approvals by avoiding lengthy processes, as lenders can completely be confident that you can repay the existing loans in the future with zero defaults or delays.
A low-interest rate on your loans –
Usually, people having a high credit score get the loan at a lower rate of interest than borrowers having a low credit score.
Zero credit risk involved –
Borrowers having a good credit score indicate a low credit risk and do not have the likelihood to delay or default on any payments. With this, lenders can enhance the individual’s credit card limit. For an individual with a strong credit score, lenders can offer different credit card benefits like lounge access, bonus points, cashback, discounts, etc.
It has been observed few of the borrowers place an application for credit cards and loans, and they use the same subsequently to make periodical payments for the past 6 months. Then after optimum utilization, you can apply for loans of huge amounts to take the undue benefit of a loan. A dishonest borrower may put the lender in a massive problem under such circumstances.
Also Check: Credit Bureau of India
Your credit score may vary as per your repayment behaviour and the lender’s efficiency in passing the info on to the credit bureaus. Owing to the importance of data in current times, it has become extremely necessary to have an accurate credit score. However, there’s maybe a mention of default in your credit report owing to the listed reasons.
Repossession
When creditors or lenders retrieve the security for the loan, a recap appears on the report that mentions that you were not able to repay the loan as per the agreed terms and conditions.
Settled accounts
At times, creditors might agree to accept the amount owed by the individual to ensure that the debt is settled. However, if an individual was unable to repay the loan at the original agreed terms and conditions, settled accounts would still be looked upon as negative on the credit reports.
In case of any defaults in your credit report, an individual must try to improve or enhance their credit profile, as, without a strong credit score, lenders might not have the confidence to lend any further.
How to enhance your credit score after default?
∙ Regular repayment practices –
Making repayments on time is necessary as this shows your financial responsibility can have a positive impact on lenders with a higher impact on credit scores.
∙ Payment of the outstanding credit balances –
Credit management is important for you to adopt. You must pay all your dues on time as outstanding dues, and enhanced balances on your credit card may lower your credit score.
∙ Maintaining a credit utilization ratio (CUR) –
It is crucial to maintain a credit utilization ratio between 30 % and 40 %. If your CUR rises, it shows you, as an individual, are spending a lot of income on debt payments, which can reduce the score.
∙ Keep a check on your credit report –
You, as an individual, must ensure that there are zero discrepancies in your credit report. You must check your credit report after every 6 months to correct the errors so that there’s zero confusion in the mind of the lender, as there are certain errors that have a negative bearing on your credit score. For instance, if any incorrect detail about you is sent by the lender to the credit bureau, it may have a negative impact on the lender.
∙ Balance between credits –
The type of loan, unsecured or secured, that you have has a considerable impact on your credit score. You must try and maintain a good balance of both the unsecured and secured loans, as a higher proportion of the unsecured and secured loans can reduce your credit score.
∙ Never indicate any risk –
A credit scoring model is prepared to pick early signs of stress as well as risk in your profile. For instance, non-repayment of your credit card bill, loan and other credit options are an indication of huge stress in your credit profile. Thus, always ensure to make your repayments in full and never delay in making your repayments.
∙ Stay patient –
Credit score cannot ameliorate overnight as it needs constant effort to ameliorate. Thus, you must be patient and timely monitor your repayments and credit report, your pattern of pending and ensure to make all debt repayments in full. Doing so over time will assist enhance your credit score in India, which would ameliorate your credibility and your chances of availing yourself more credit in the future?