/How to get Credit Score

How to get Credit Score

Before telling you that how to get credit score, lets understand it first. When an individual or corporate institution approach financial institute for credit or loan. Banks check the credibility of individual or corporate institution with the help of CIBIL (credit intelligence bureau of India). Since it is an authorized agency which maintains records of credit activities of individual and corporate institution. All financial institute which are the members of CIBIL submit regular credit activity report of their clients. Hence as per the credit activity report, it generates a credit score.

What is credit score

Credit score is a numerical value which ranges from 300- 900, basically it provides information to a lender about borrower creditworthiness. so if individual or corporate institution credit score is more close to 900 than it shows their loan repaying capacity is higher and there is no chance of default but if this value is close to lower value than financial institute may avoid any kind of transaction, as it will increase chance of default. so let’s see different credit score, which helps financial institutions to grant credit.

Excellent credit score – if your credit score is between 750 to 900. It is considered as best credit score. In this scenario borrowers are in position to take advantage, because no one like to loose opportunity to grab a good customer. The interest rate offered by the financial institute is going to be low and comes with other rewards. The higher credit score considered to be at the lowest risk of defaulting on loan repayment.

Good credit score – A credit score which ranges between 650 to 749 is considered to be good credit score. The lender will lend the credit to borrower but borrower will not be in position to get a lowest interest rate, as we have seen in the case of excellent credit score.

Average credit score – A credit score between 550 to 649 is an average credit score. This is quite low and you have to work on to improve it. Financial institute hesitates to lend money with average score. To improve your credit score, you can work on repayment history, high credit utilization, multiple inquires and credit mix.

Low credit score – if your credit score is between 300 to 549, then it is a low credit score and in this case financial institute do not give loan. As chances of default and non-repayment of loan are very high.

NA – If there is no credit activity in the last couple of years.

NH – It means no credit history i.e either you are new to the credit system or you don’t have enough credit history.

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If you fall in any of above two options i.e NA\NH, there is no need to panic as you can start your credit score by applying for small loan amount.

Credit score calculation

The credit score ranges between 300 to 900. Here 300 is considered to be very low and 900 to be best. We will now understand how to calculate it. what are the key parameters it depends upon, and let’s take them one by one.

Credit score calculation takes into consideration four parameters and each one of them has a different share.

Past performance – it constitutes 30% of your CIBIL score and takes into account whether you repaid loan on time or not. If you have defaulted in the past, or if you are not able to pay the whole amount then you must pay at least minimum due amount. This will help to keep your CIBIL score in better shape.

Credit mix and duration – it constitutes 25% of your CIBIL score. Credit mix is a mix of secured(home loan, car loan etc) and unsecured loan(personal loan, credit card etc). If you manage proper credit mix than it can help improve your credit score. If you are taking too many loan in shorter duration and more on credit than it will impact negatively to your score.

Leverage – it constitutes 25% of your CIBIL score. If there is very high usage of credit card and loans compared to your income than it is going to negatively impact your credit score calculation.

Others – it depends upon how any enquiries you have generated in last few months. If it is limited, to one or two then it’s good, but if this number is as high upto 80 to 90, then it is going to impact negatively your CIBIL score.

why credit score drop

  1. Default on loan repayment – There could be many reasons. You might be facing genuine hardship, missed payment on a credit card. All these factors have bearing and it will bring down your credit score.
  2. High amount of unsecured debt is another reason. If you using unsecured loan more in comparison to secured loan. Any financial institute will be reluctant to give more unsecured loan. Since there is no collateral available, this is another reason for credit score going down.
  3. Leverage or overuse of prescribed limit of loan or credit.

How to improve credit score

  1. Make loan repayment on time. If possible, do not delay them beyond a certain point. Still, if you missed on EMI for 1-2 months then make sure that at least you will pay dues.
  2. limit your unsecured credit limit to 20% of your total credit limit.
  3. Do not take too many loans in a short duration.
  4. Your payment towards all EMI should not exceed 40% of your salary.
  5. Try to avoid the use of many credit cards at a time. They have a negative impact on credit score if you don’t do repayment on time.
  6. If your credit score is already low and you are not able to take a loan. You can still improve it by using the alternative methods. You can use your FD’s, LIC, GOLD etc. to take credit. By doing timely repayment you can improve your credit score.
  7. If you have a joint account or a partner in the firm while taking loan. Make sure that in any case repayment happens on time, it will help you in improving your credit score.

How to check credit score

we can check credit score on CIBIL website www.cibil.com, and follow the procedure.

  1. Create your user id and password. Enter your name, email id and mobile number.
  2. Enter personal details. This would be your date of birth, address, identity proof such as pan card and Aadhar number.
  3. verify your identity…An OTP will go registered email and your mobile number, to verify that it’s really you.
  4. Once you complete the above three steps then you will receive a CIBIL score or credit score on your registered email.

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so we have seen that good credit score is an absolute necessity, to avail credit facility, without good credit score financial institute hesitate to give loan, since there is a very high chance of default on repayment of given credit. if you have a good credit score then you will get a loan, at better interest rate in comparison to those have a low credit score, so maintain high credit score.

Engineering graduate, and now pursuing career in personal finance management