How important is your CIBIL Score?

What’s your Credit score?

Remember the advertisement on television, about how important your CIBIL score is? Or while applying for a bank loan, you must have come across the term CIBIL credit score. Now, many might wonder what exactly is a CIBIL score and how does it relate to bank loans? Well, your credit score can directly influence your loan approval procedure!Intriguing, right?

India has three Credit bureaus - CIBIL, Experian and Equifax. These agencies are responsible for maintaining every Indian citizen’s financial credit history and behavior. They keep a track of all the transactions taking place in every individual’s account. Be it present or past loans, credit cards issued, bank over-drafts etc, these agencies keep a tab on every financial move of yours. On a monthly basis, the credit bureaus update every borrower’s profile, including transactions done and loan agreements made.

All transactions tantamount to the final credit score of an individual. The score is made up of a complex algorithm,taking into account every financial transaction made by an individual. So then, the question arises as to how to maintain a good credit score report?

A good credit score importance – for ensured loans!

Did you know that you can earn negative credit scores as well?

Yes. Every transaction that you make, can either account for a negative or a positive point for you. So, when you repay a loan or credit card installment, you earn a positive score. In the same way, every installmentmissed or defaulted has a negative impact on your score card.

Interestingly, if you do not have a credit history, due to no previous loans or credit cards, the situation can go against you! The reason being simple; no credit score makes it difficult for financial institutions to correctly evaluate your creditworthiness. Even if you do get a loan, it could be of a very minor amount and the sanction of it would be based on the equation you share with the bank.

These screenings are used by the banks/financial institutions to assess the creditworthiness of applicants and the loan sanction process heavily depends on it.Here are some of the adverse effects, in case of a negative or no credit score:

• Cancellation of loan agreement
• In case it is approved, the interest rate or collateral demand stands very high, as compared to someone with a good score
• Your creditworthiness is at stake and can have a negative impact on your future financial plans
• A low credit score can also lead to cancellation of credit card applications

Since every bank and financial institution have access to CIBIL credit score or scores from other agencies, it is imperative to improve and maintain a good score card. How to improve credit score?Below are a few simple steps, if followed, can fetch you good scores:-

• Avail loans, only if you are confident about re-paying the installments on time
• Ensure on-time payment of all credit card dues
• Maintain a clear track of all your financial transactions

 Start building your credit score by following simple rules and build a strong financial portfolio for yourself!