What exactly is a Credit Score?
Simply explained, a credit score is a numerical representation of your creditworthiness. The score is determined by your credit behaviour and serves as proof to lenders of how well you have managed your finances on your own.
To delve deeper into how this enigmatic number is calculated, we must first understand that credit scores are established by credit bureaus, which keep a record of your credit actions and calculate the score based on commonly accepted norms.
What is the significance of a Credit Score?
A credit score is a three-digit number that indicates your creditworthiness. When a borrower asks for a loan or a credit card, lenders look at it first. It gives them an indication of whether you’ll be able to repay the loan on time. As a result, it is critical to maintain a high credit score. Maintaining your credit score is as simple as making all your payments on time, monitoring your credit reports on a regular basis, paying off any current credit card debt, and keeping your credit utilisation rate under 30%.
Who calculates the Credit Score in India?
The term CIBIL (Credit Information Bureau (India) Limited) should be defined first. CIBIL is a well-known credit rating agency in India that assesses your creditworthiness. Because of CIBIL, India may easily be described as a financially literate country. It has increased the financial markets’ openness, dependability, and organisational structure to increase knowledge among financial institutions and firms on how to manage risks and reduce bad loans.
A CIBIL check is performed online. Before accepting a loan, banks and other financial institutions look at the CIBIL score. Check your credit score on a frequent basis to ensure that it accurately reflects your creditworthiness and is free of errors and abnormalities. This allows you to keep an eye on changes and spot questionable activity. Here are various internet methods for determining someone’s CIBIL score.
How and where can you check your credit score for free?
- Via the Bajaj Finserv website
- Go to the Bajaj Finserv official website and click “Get Your CIBIL Score.”
- Fill in the blanks with the necessary information (Name, DOB, ID proof, loan history).
- You will be routed to the payment page after submitting the form. CIBIL charges a fee to receive a credit report.
- Once you’ve completed your payment, you’ll be taken to the authentication page. At least three of the five questions about your credit history must be answered correctly for identification. After it has been authenticated, the report will be delivered to your inbox within 24 hours.
- Check your CIBIL score using your PAN card.
- To obtain a free CIBIL score, go to the Bajaj Finserv official website.
- Fill in the essential information (name, DOB) on the form. • For ID proof, select ‘Income Tax ID Number (PAN)’ and fill in the necessary details.
- Choose your source of income and the amount you make each month.
- Include your mailing address as well as contact information such as your phone number and email address.
- You will receive the free report in your inbox within 24 hours.
- Get a CIBIL Score by Inputting Your Phone Number
To check your CIBIL score through mobile number, you must first provide personal information on the site. The user must then validate their identity by sharing the one-time password (OTP) that was provided to them. They must provide the same information on the next page to see their CIBIL score.
Aside from income, one of the most essential things lenders consider when accepting loans is CIBIL Score. The Credit Information Bureau India Limited calculates the CIBIL score in partnership with other recognised credit bureaus across the country. Your payment history, payment behaviour, current credit outlets, and the amount of credit you have all play a role in your credit score.
What are the factors that determine credit score in India?
- Inquiries, both hard and soft:
When you apply for a loan or a credit card, the lender obtains your credit history from the accessible bureaus. This is known as a hard or pull enquiry. If you apply for too many things, your credit score may suffer. A soft enquiry is one in which you check your credit score on websites such as Bajaj Finserv. Also, if you have a pre-approved loan or credit card offer and inquire about it, it will be classified as a soft enquiry and will not have a negative influence on your credit score.
- Increasing the credit limit
Because of your responsible credit behaviour and other circumstances, your credit limit may be increased by your credit card provider if you are able to increase your credit score. Accepting such offers is recommended because it raises the available credit limit. It aids in keeping the credit utilisation ratio low, which has a beneficial impact on your credit score.
- Frequently opening new credit accounts
If you frequently open new credit accounts, it indicates that your present accounts are insufficient to meet your needs, which results in a bigger credit burden in the future. This could lower your credit score.
Benefits of Having Good Credit Score
If you have a good or excellent credit score, you will save hundreds of thousands of dollars over the course of your life. Mortgages, auto loans, and other types of financing are more affordable for persons with good credit. Clients with higher credit scores are deemed lower-risk, and more banks are competing for their business by offering cheaper rates, fees, and bonuses. Those with poor credit, on the other hand, are higher-risk consumers, with fewer lenders competing for them and more corporations able to charge illegally high annual percentage rates (APRs). Furthermore, your credit score has an impact on your ability to rent property, rent a car, and even obtain life insurance.
Why is a good credit score important?
When you apply for a loan, the lender will request your credit score from the credit bureaus. If your credit score is low, your prospects of securing a loan are also limited.
Another advantage of having a strong credit score is that you can get better credit card deals and lower interest rates on loans. This is since a good credit score demonstrates that you manage your credit responsibly and are less likely to skip payments.
What are the factors that can impact your credit score negatively?
The following variables may influence your credit score:
- Credit usage ceiling
- History of repayment
- Credit blend
- The quantity of credit inquiries
- Credit history duration
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