Achieving a good credit score is an iceberg. There is what people see on the surface: lower interest rates, faster loan approvals, enhanced credit limit. Then there is what people don’t see hiding below the surface: consistency in payments, maintaining a low credit utilization ratio, limiting loan applications, tracking credit report regularly. The key to the ‘Credit Score Illusion’ is creating balance in your financial life. Take a look at our image and note down the things that resonate with you!
A credit report is a testimonial of how well (or unwell) you manage your money. These reports contain a history of balances, payments, accounts, inquiries and other pieces of personal information that are referred by lenders to decide whether to lend you money. Credit scores are calculated from the data contained in your credit report. In India, scores range between 300 and 900. The higher the number, the better the score.
There are four credit bureaus in India from where you can download your credit report and find out your credit score. By law, you are entitled to a free credit report from all the four credit information companies at least once a year. Alternatively, you can also check your credit score either free of cost from online websites which have tied up with one or more of these credit bureaus.
Let’s find out how you can get your CRIF score in the following 3 easy steps from CRIF High Mark’s website:
1. Fill in your Details, Identification Proofs, and Address: You will be asked to provide your email ID first; Post which you will be presented with a form requiring the rest of the details such as Full Name, Mobile Number, Date of Birth, Residence Address & Gender. You will also have to submit your identification details such as PAN number, Voter’s ID, Passport Number, Driving License, or any other ID.
2. Review your Report type:
Here you are presented with two options of downloading credit report; you can either BUY an instant credit report or you can opt for a FREE credit report. An instant credit report can be ready to download within 5 minutes but will cost you around Rs. 400 where as a FREE credit report can take up to 3 working days to get ready for your viewing.
3. Authenticate your inquiry: Once you fill in all the details and select your report type, you will be asked to answer a multiple-choice question to confirm your identity. You will get a set of three questions based on your past loans or credit cards. Upon a successful answer to one of these three questions, you will be presented with your report on your registered email ID.
How Often Should You Check Your Credit Score
You can check your credit score as often as you want to. The common misconception that checking frequently negatively impacts your score is just a myth. A Credit score can affect aspects of your financial life such as the ability to buy a home or car or even get a credit card. Here are a few more reasons you should know your credit score:
• Knowing your financial value: Credit score is an indicator of your financial health. By knowing your credit score, you know financial standing in the market. If you have a low score, you can take corrective measures to improve it. If you have a high score, you can take pride, rejoice and try to maintain it.
• Get better interest rates: A good credit score not just helps you secure a loan, but also reduces your interest rates. A bad score may render you unqualified for a loan or in the least give you a tough time.
• Get rewarded: If you have a credit score, you might well expect occasional rewards in the form of discounts, credit increment and other benefits owing to your clean conduct.
While being aware of your credit score and routinely checking one will keep you well informed and ahead of your counterparts, make sure you don’t make overdo it to the point that it starts causing anxiety!
Personal Credit Score vs Business Credit Score, What’s the Difference?
Personal credit score and Business credit score are two different types of scores that show the financial ability. A personal credit score is the depiction of an individual’s credibility while a Business Credit Score is the representation of the business’s credibility. The scores are usually not linked with each other unless the business is a small sized business where the owner’s personal credit score influences too. Let us break down both the scores for you to understand it better.
What is Personal Credit Score?
Personal Credit Score is a three digit number ranging from 300 to 900 representing your financial ability and credibility. A credit score is primarily based on the credit report information that is sourced from RBI regulated credit bureaus like CRIF. The perfect credit score to get a better credit is 750 and above. Higher the score, higher is the credit limit for your credit card, lower are the interest rates and faster is the process of getting the loan as a good credit score is ideally the best way to know one’s financial habits. A score of 650 or lower will hamper your chances to get a credit from trusted financial institutes. Simplest ways to maintain and have a good credit score is to keep a check on your credit report, paying bills on time and being financially consistent and stable.
Who and What Determines Your Personal Credit Score?
Credit Bureaus like CRIF assign your creditworthiness a score, using variations of the CRIF Score algorithm.
Personal credit score is made of five key components:
● Payment history (35%)
● Amounts owed (30%)
● Length of credit history (15%)
● Credit mix (10%)
● New credit (10%)
Tips to Boost Your Personal Credit Score
● Since paying your lenders on time represents 35% of your credit score, sign up for automatic payments for all of your credit accounts.
● Adjust your due dates according to you by requesting the banks or lenders. You don’t have to settle for a due date that is poorly timed with your paycheck.
● Aim for a credit utilization ratio of 30%. Whenever it is possible, pay off your credit cards in full month after month. A credit utilization ratio of under 30% across all cards is a sign for lenders that you’re managing your credit responsibly.
● Handle new credit carefully as opening too many new credit accounts will depict a behaviour that shows instability and every time you open a new credit account your credit score takes a small hit.
● By closing your oldest account, you may dramatically reduce your length of credit history and negatively affect personal credit score.
● Every year you can check your credit score online with RBI regulated and trusted credit bureau like CRIF for free. Keeping a check on the credit score is a habit that you should instil to be aware when the score falls or when it should
Why does an Individual need a credit score?
To have a credit score is mandatory for an individual to make sure that his credibility is not questioned when he seeks credit from the financial institutions. Having a good credit score means escalated loan process, better interest rates, bigger credit limit and faster approvals on loan requests.
What is Business Credit Score?
A Business credit score is a numeric representation of your company’s creditworthiness. It ranges from 300 to 900 in India. The information on your business credit report is used to produce the score, and business lenders use it when they are considering your credit application to predict the financial stability and credit behaviour. A higher score means your business has a history of paying bills on time.
Who and What Determines Your Business Credit Score?
Credit Bureaus like CRIF take into consideration various factors while calculating and determining the credit score for your business. Key Components of the Business Credit Score are:
● The number of years in Business.
● Lines of Credit applied for past 9 months.
● New Lines of Credit opened
● Collections and Liens past 7 years
● On time payment history.
Tips to Boost Your Business Score:
● Check your credit report at all times to keep track of what has a negative and what has a positive effect on your credit score.
● Pay your bills on time to show stable credit behaviour.
● Decrease your credit utilization ratio for reflecting a good credit behaviour of the company.
● Make sure when you pay off the debts the negative account is deleted.
● Add positive payment experiences in the payment history of the business.
● If you have a small sized business then keep your personal credit score on a check too.
Why Does Your Business Need Credit Score?
A business credit score helps in separating business from personal finances. During the application process, your underwriter will take a look at additional documentation, such as bank statements or business credit reports. Keeping your finances separate is important for two key reasons, tax deductions and preventing a creditor from having a stake in your personal assets to satisfy a debt.
When you apply for a loan of any kind, irrespective of your background or your ability to pay a lump-sum in your down payment, one important tool that helps the bank trust your ability and your intent to repay is a good credit score. Since the time credit bureaus have come into the picture, a credit report has become a financial bible for the banks.
A credit score is an aggregation of all your loans and credit cards. It reflects your creditworthiness and credit health. A score between 750 and 900 is the equivalent of an A/A+ on your school report card. It implies you’ve been very responsible with your credit, paying your EMIs and dues on time and in full each month. Even if you had a low score at one point, you’ve worked hard over time to reclaim a top spot on the credit score charts. In short, you’re very mindful and responsible when it comes to credit.
Your score also reveals that you’re a relatively safe bet when it comes to borrowing money from a lender or availing credit card facilities. According to credit bureaus, the lowest interest rates tend to go to borrowers with credit scores in the 750-900 range, which means your high score will also help you save money down the road. Besides these advantages, a 750 above score is also loved by banks. Below are the some of the reasons:
1. Judging your reliability becomes easier: The credit bureaus like CRIF are RBI regulated and for scoring an individual they employ sophisticated statistical analysis of your repayment performance on loans and credit cards listed in the credit report. A credit score takes into account many parameters, and helps bank predict future riskiness of a customer. The credit score thus becomes one of the major criteria for the bank.
2. Saves the bank a lot of time: The credit score is a sum of your loan repayment behavior so the bank saves a lot of time in analyzing how your credit behavior is or your ability to repay. The loan sanctioning process is simplified and is a lot faster. As a customer, you get your loan decisions fairly quickly.
3. Accuracy is on point: Initially, the traditional ways were adopted to verify an individual’s credibility which differed as the process depended on varied sources thus making the results volatile in nature. Since the time credit bureaus like CRIF have come into the financial world, the decisions have become more objective, data driven and also standardized. Therefore, the accuracy of the decisions have improved and also more dependable.
A good credit score is the magic wand that does the trick on banks when you apply for your loan to fulfil the most awaited dreams. The banks come across thousands of application for loans and the credit score helps them accept or reject applications in a more organized way and also quite quickly. A bad credit score can make you a risky bet while a strong credit score is encouraging to banks, ensuring you get the best deals out there, which saves you time, money and worry.
Check out our infographic to know what affects your credit score and how your actions could improve or hurt your creditworthiness. While various credit scoring models may weigh each factor differently, we’ve listed out the most important ones for you.
Building a good credit score is very similar to building a good reputation; both require an immense amount of work and patience. Loans are a crucial part of the modern man’s life and building a rock-solid credit history is of paramount importance for getting a big loan approved. If you are successful in maintaining a high credit score your quality of life will take a 180-degree turn as you will be able to buy all the luxuries in the world for yourself and your family.
But the sad part of the story is that your scores can drop real quick for the smallest of the reasons. It can be disheartening to know that you have a low score when you open your credit report. But hey, do not be discouraged, you can still work things out! Wondering how? Look no further, we have compiled a list of 4 things you can do to build a great credit score.
Repay Your Card Dues and EMIs in Time:
Yes, however stereotypical this suggestion sounds it is actually true. Every credit risk analytics expert swears by this strategy. A consistent regular repayment on your card dues and EMIs will definitely help you with a good credit score. If you become delinquent and default on your loans, your credit score will be negatively impacted because the lender will report that you are not in compliance with the terms of your loans. Even if you missed a payment, do not sulk in worry. Get up and bring your loan to regularity now.
Utilize Your Card With Caution Don’t Use The Card To Its Full Capacity:
Having a credit card is not your ticket to go overboard on shopping! Things can take a detour and you may soon find yourself in a pool of debt. Using the card to its full capacity is never the right thing to do. Try spending only up to 40% of your credit limit to keep the balance low it will help you repay the full amount on the due date and also keep your credit score in low.
Limit Your Credit Card Applications OR Loan:
Too many credit inquiries on your profile by banks ‘whether they be for a credit card or a loan’ also can also bring down your score, so make sure you’re only applying for credit only when it really is necessary. Select a credit card and a bank after doing research rather than blindly applying for credit with many banks.
Checking Your Credit Score Regularly:
Don’t lose the good credit score you’ve worked for! Now’s definitely a good time to ask yourself if you’re being proactive about protecting your financial health. Management guru Peter Drucker said that you can’t manage what you can’t measure. To manage over your credit and your financial life, you must measure your creditworthiness through the credit score regularly. Tracking your credit score every quarter helps you stay on top of your own credit report and thus, maintain a good credit score.
So there you have it, all you need to do is blend these simple steps together and make a great recipe for a good credit score! If you still feel uncertain about how to build and maintain your credit score, you can read our BLOG or feel free to get in touch with us!