Credit Scores are like your report cards which every financial institution looks at prior to loan evaluation. It is the foremost determinant of your credibility of loan repayment. They are a 3 digit score given to you by CIBIL which is the premiere credit bureau in India that evaluates individual’s score according to their previous track record of loan and credit card payments.
The CIBIL score ranges from 300 to 900 with 900 being the absolute perfect score. A good credit score ranges from 750-900. Anything above 750 signals the bank that you are trustworthy and credible towards your payments. A credit score substantially less than 750 make an individual appear risky to the lenders.
A newbie or an individual with no past records will have a -1 score. And it takes time to build up a satisfactory score, usually between 18 and 36 months.
The perks of having a healthy Credit history widens your financing options and you could avail loans effortlessly. This will help you to achieve your financial goals without hindrances.The lenders after seeing your good credit history could be convinced to offer you better loan terms including low interest rates.
There are some obvious factors that impact credit scores which everyone should be aware of-
1. Late payments-
Late payments are a big NO and this is the last thing you want to do if you want a great credit. Even a small delay of 30 days could adversely impact your score.
2. Your credit utilization ratio-
One can’t just go by paying your debts with your credit cards. You need to pay the card dues in regular intervals and ideally maintain 35-40% utilization ratio at all times.
3. Multiple Loan/Card Applications in Short Interval-
One Should not appear to be credit hungry- This is because of a simple reason that each new application will trigger a hard enquiry from the CIBIL which impacts your score.
4. Check Your Reports-
CIBIL and other credit bureaus get a huge amount of data to evaluate and there is no detailed check for them to verify the accuracy of these data points. There can be a possibility that the information provided by a particular lender to CIBIL may be inaccurate and this could impact your scores adversely. So one needs to carefully go through the credit reports to ensure there are no mistakes.
As objective these reports are, there is still a possibility to improve your scores which is not an impossible task.
1. Verify your reports-
Firstly you need to make sure that all your previous records of debts reflected in your report are completely true. The credit bureau is answerable to you as to how they included a particular record in your report. So you need to go through all the previous records and identify any inaccurate ones. Any adverse record without sufficing proof will have to be removed by the credit bureau. There are greater chances of this happening if the records are not that recent.
2. Get a secured credit card to build up the score-
If you want to rebuild your score, it is advisable to get a credit card. It will signal to prospective lenders that you have overcome your financial stress and can take up the responsibility of availing credits. But get another credit card only if you are in a position to service the payments, otherwise you will be just adding up to your misery.
3. Judicious Use of Credit Card Limit-
Often people get oblivious to the importance of Credit vs. Debit ratios. If you keep on using your credit card for your bills without paying it for a long time, it will still impact your score. It is preferred that you only use your credit cards under 35% of its limit to keep the ratio in balance.
For a newcomer who has no past credit history, the score is usually -1. It takes a fair amount of time (almost 18 to 36 months) to build up a constructive and trustworthy score. But by considering some points and being mindful you can achieve a satisfactory score in less time.
1. Try to save your initial salary-
It is natural to get a little distracted with all the money coming to you from your new job, but the rational approach to it would be to save the majority of your income and pay down your existing loans, like education loans. And if you have no outstanding loans, maintain a strong savings history, which would help you get a credit card
2. Piggy-back of a family member-
Get a credit worthy co-signer with you, which is one of the easiest ways to start off when you are a beginner. The banks would agree to offer you credit with a responsible and credit worthy co-applicant with you, which otherwise you wouldn’t have been able to avail.
3. Get a credit card-
In your initial days; it is really important to show the lenders that you are responsible towards your credits. But for a beginner with no credit history, it often becomes difficult to get one. As a beginner one should also consider secured credit card options which can be availed by most people.
– Secured credit cards- These cards are like debit cards where the credit limit is secured against fixed deposit (“FD”) so there is no risk of default by the credit card holder.
Apart from the above mentioned points, also consider checking your credit reports frequently and try and identify your weak areas so that you can swiftly escalate your scores.