Credit score is a 3 digit summary of credit worthiness. It is based on repayment history and some other factors. If you have availed credit cards and loans over the last 7 years, then you would have a credit score. People with no credit history don’t have credit score.
Credit score is a very important parameter which lenders look at, when you submit a loan application. If your credit score is low, then chances of lenders rejecting your loan application are high.
If you have handled debt wisely and carefully, then you can expect your credit score to be good. If you have a track record of missed or late payments, defaults, write-offs and settlements, then your credit score would be low. Credit score ranges between 300 and 900, with 900 being the best. Your credit score is considered good if it is in excess of 700, and individuals with this score enjoy benefits of faster processing of loan applications, collateral free loans and loans at lower interest rate as they have a proven record of repayment.
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You must be aware of the fact that the usage of prepaid credit and debit cards is not reported to the credit bureaus. Using these cards has no impact on your credit score as these are not a form of debt; you are spending your own money by loading it in the account. If you are not able to avail credit cards but want to improve your credit score, then you must avail secured credit cards. Use them wisely and make repayments on time. This enhances your credit score.
The impact on credit score due to someone pulling your credit report depends on the type of enquiry being made. There are two types of enquiries: soft enquiries and hard enquiries. Credit score reduces only when hard enquiries are made. Hard enquiries are those made by potential lenders, when you submit an application for loans and credit cards. More the number of credit applications, lower would be the credit score. This is because the banks consider you, desperate for financial support. Lenders check your credit report to understand credit behavior.
Soft enquiries are self enquiries made by individuals to check their credit score. Soft enquiries have no impact on credit score. You can check your own credit score as often as possible without the worries of credit score being impacted.
SEE ALSO: Cibil Score For Credit Card
Credit cards are not the only form of debt that one can have. Hence, not having a credit card does not ensure a high credit score. If you have availed other forms of debt and not repaid regularly, then your credit score would be low. On the other hand, having credit cards and using them wisely improves your credit score. It is important to build a credit history, which includes having credit accounts and clearing debts on time.
If you have previously not availed any forms of debt and are applying for high quantum loans like home loan, then there are chances that lenders may reject your application, as you don’t have a proven track record of repayments. In this case, it’s good to avail secured cards and use them wisely. Doing so would give you a good credit score, which in turn helps avail high quantum loans.
Closing credit cards and other similar accounts that are dormant, does not increase your credit score. In fact, closing these accounts can actually reduce your credit score, as track record of repayments on credit cards is much shorter.
The factor that comes into the picture here is the credit utilization ratio, which is the amount of credit you have spent against the amount of credit sanctioned. Creditors are more interested in knowing how well you have managed your debts, so they prefer you to have credit accounts.
If you are considering closing your credit card accounts, then close new accounts rather than an old account. The length of your credit history is a positive. You can also close accounts with lower credit limits than those with higher credit limits. This shows responsible repayment.
Your income, savings accounts, and investment accounts are not debts of any form and are not reported to the credit bureaus. Hence, they do not have an impact on your credit score in any way.
There are 4 authorized credit bureaus and each of them has their own criteria for calculating credit score. Hence, there are 4 different credit scores for individuals in India. CIBIL is the most popular credit score in India, followed by Experian. All banks in India are mandated by RBI to share credit related transactions with the authorized credit bureaus for the purpose of credit score calculation.
SEE ALSO: How To Get My Cibil Report Online?
Your credit report depicts your credit history, which includes both positive and negative accounts. This means late payments, write-offs, settlements and bankruptcies remain in your credit report for duration as long as 7 to 10 years.
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