Need loans at a low rate of interest? Maintain a high credit score!

Credit score

Credit score or CIBIL score is the numerical representation of one’s credit history. The credit score or CIBIL score is sourced from credit bureaus. The score can range from 300 to 900, 300 being the lowest and 900 being the highest score.

Banks always aim to offer loans at a low rate of interest. But no matter how low of an interest rate the banks offer, the customer always wants better. What many people don’t know is that they can get loans at a lower rate of interest just by maintaining a good credit score. Yes, it’s as simple as that. Your credit score has the ability to get you loans at a lower rate of interest without any hassle.

Connection between credit score and loan eligibility

Your credit score is one of the important things banks look at when they consider your loan application. A credit score indicates your credit worthiness and your ability to repay the loan. If you have a bad credit score, the bank can reject your application right away even if you do fulfil all the other eligibility criteria. Your credit score plays a very imperative role when it comes to deciding your eligibility for a loan. Banks and financial institutions use the credit score to assess the risk posed by lending money to the applicant and to mitigate losses due to bad debt.

How can a high credit score get loans at a lower rate of interest?

Every bank has a cut off on the credit score of the applicant for the loan. The bank decides the interest rate and price of the loan depending on the risk profile of the applicant obtained from credit/CIBIL score. A customer with a low credit score will be granted a loan with a higher rate of interest while a customer with a good credit score of about 750 will be granted loan at a competitive rate of interest. The reason why the lender prices the loan high for the customer with bad credit score is because of the possibility that they might default on the loan. So it is very important to maintain a good credit score.

Three steps for credit newbies to get the ball rolling

If you’ve never taken credit before, your credit score with the country’s leading credit information bureau – CIBIL – will read NH, meaning “No History”. Banks and lenders tend to avoid “NH” applications because of their potential for default and the direct losses the bank will experience as a result. The only way to get credit is to have a good credit history or score – and the only way to get a good credit history or score is by taking credit. It’s kind of a catch 22 situation, but doing these 3 simple things can get you started on the road to financial freedom by slowly helping you build a positive credit record:

1. Use credit cards carefully: For someone with no credit history, getting a secured credit card is easy and highly useful. But the mistake most new borrowers make is to use their credit cards irresponsibly, by delaying payments and making impulse purchases.

Judicious and careful use of your credit card can take you a long way in building and maintaining a good credit rating and will make you eligible for loans and greater avenues of credit in the future. Whenever you make a purchase, ensure that you will have the funds to pay it off before the due date. If you miss making the payment by even just one day, there will be fines, charges and penalties levied which will damage not only your credit rating, but your financial health as well.

Secured credit cards can be acquired by applying for one against the security of a fixed deposit with the same bank. There will be a minimum deposit amount that will need to be maintained. Using this card regularly for small to medium purchases and paying off the entire amount well before the due date will contribute greatly to your credit score.

2. Stand as a guarantor or co-applicant for loans: Standing as guarantor means that you are just as responsible for the debt as the applicant. Details of the loan, its repayment and all other specifics are reported to the credit information bureaus for both people, and will reflect in both credit reports. Ensure that the person whose loan you’re guaranteeing is a person you can trust, and one who is responsible with money, as a default on the primary applicant’s part can leave you in the lurch and destroy your creditworthiness.
   

A successful loan repayment will guarantee positive credit ratings for the applicant and guarantor alike, and can be an argument used in your favour if your loan application is ever denied on the grounds of a less-than-favourable credit rating.

3. Monitor credit reports: Many people who do everything right and think their credit report is positive are usually in for a nasty shock when they receive their actual credit rating. There have been a number of cases reported wherein the credit information bureaus receive faulty information that reflects negatively in credit reports – this can happen due to a number of reasons including negligence on the part of credit information partners. To make sure that all the details mentioned in your CIBIL report and absolutely true, request a copy of your credit report once every 6 months and immediately correct any errors that you find. If you plan on borrowing heavily in the future, a clean credit report is absolutely vital.

There are many more ways you can build your credit report up to be a reflection of your outstanding ability to manage debt – but you need to be diligent and meticulous in your financial planning. It isn’t hard to do, and the reward is all the credit you need. Lenders will, of course, expect you to behave with the new credit with the same care and control as you did with older, smaller loans.

Managing finances is important, and managing your CIBIL credit score and making sure it always shows you in a good light can be considered a vital offshoot of judicious financial planning. Many employers these days are looking at a stable and well-maintained credit report as an indicator of stability and trustworthiness while reviewing job applications.

If your credit history is non-existent, don’t let it worry you – as you are perfectly poised to write an excellent credit history for yourself on a clean slate.

How credit score can impact your employment

The western economies have been considering a person’s credit profile before hiring. The companies consider a bad credit score as an irresponsible behaviour of an individual. The person’s inability to pay the bills on time shows that he is not capable of taking care of things. The companies run a credit check just like they would check for criminal history as it will affect the employer’s reputation as well.

Credit check has become a part of the background check which is done by the human resource team of the employers. A bad credit score is implied as bad intentions in general. If the applicant has ‘settled’ stated across the credit cards, then the HR tries to stay away from such candidates. It is also believed that the people in a high level of debt cannot work efficiently and therefore will not deliver the best results.

It can be argued that those who have been victims of identity theft and wrong entry in the credit report are wrongly judged. Even though this is true, the IT companies are also seen accessing the credit report while running a background check of a candidate. The list of sectors that will run a credit check keeps increasing. The best thing to do is to be aware of your credit score and thoroughly read your credit report.

It is important that you check your credit score and credit report once in a year at least. Access the credit score before you are applying for a job. Check for discrepancies and if you find any, report it to the credit bureau. Check if appropriate actions are taken with the bank and the credit bureau. This doesn’t end there, you need to follow up and see if the matter has been resolved. If this is the case, then you have a valid explanation and make sure that you bring it to the notice of the Human Resource of the company that you are applying at. This will help the Human Resource to take an informed decision rather than simply rejecting your application. 

Though the companies are referring to your credit score, it is not the only deciding factor for a person to get a job. If your credit score is good, then it is only going to improve the prospects of you landing a job that you prefer. A good credit score puts you in a good position. So, pay your loans on time and keep a tab on your credit score and fix it if they are bad. Keep an eye out for false and wrong credit information. IF you find discrepancies, report it to the bureau and take corrective measures and clear it out with the bank and the credit bureau. Follow up on your complaints and check if they have been resolved. 

Companies are now checking the Credit score and report to judge a person’s stability and efficiency. However, the reasoning is held against the victims of identity theft and if there was a wrong entry. But, then they can be resolved.

Reasons to access your credit report

We are always stressing about having a good credit history and a good CIBIL score when we are in need of a loan. Most often we think that it is enough if we have all the documents in place while applying for the loan. But that is not enough, we need to access your CIBIL report and CIBIL TransUnion Score before we are applying for the loan to check where we stand.

According to Harshala Chandorkar, senior vice president- Consumers Services and Communications at CIBIL, CIBIL report and the CIBIL TransUnion Score is a testimony of your financial discipline to banks and financial institutions for approval of your credit card or loan application. A healthy credit report and Free CIBIL Score is an indication that you manage your finances well. 

Why is it important for you to access your credit report often?

• You are always ‘loan ready’

CIBIL report contains information about your income to debt ratio as well as your credit history. This is one of the important parameters that come into factor during the loan approval process. So, before you are applying for a loan it is important that you check your credit eligibility and do your homework. Calculate how much your income to debt ratio is and also aware of your credit history and credit score. Read through the whole report and check if there is any reason for having a low credit score or any other factor such as loan settlement and find ways to correct it and increase your credit score before applying for the loan. The report will prepare you for the unpleasant surprises that you get when your loan is rejected.

• Helps you manage your accounts

The CIBIL report will help you keep a tab on the loan and credit card accounts and helps you monitor the loan performance. It also helps you to keep track of the loans that you have co-applied for and guaranteed. You can also keep a tab on the supplementary credit cards. You will not have to individually check for the status of your loans as all this information is provided on a single platform.

• Run an accuracy check of your credit history

In a place like India, there are many people with similar names and there is a good chance that the data might be accumulated wrongly under your name. So, by accessing your CIBIL report, you can look for discrepancies. There is a huge data being collected and there might be a slight error in the way it is being recorded, but that small error might cost you a good credit score. When you access the report, look for discrepancies and have them corrected through the CIBIL online dispute resolution forum. When you are applying for a loan, the wrong information could be a major deciding factor for the lender to offer you the loan and the lender might reject your application on a ground that is incorrect and when the lender rejects your loan application, it again lowers your credit score.

• Credit health check-up

CIBIL report provides you the insights to your financial health and how much debt you hold and how it is being repaid and gives you the exact number of times you have applied for a loan and a credit card. It will also have a record of the loans that you have settled and loans that were written off or if you have a suit filed against any of the loan account. When you run a credit health check-up, you can find corrective and preventive measures and help maintain a healthy credit report.

• Help you negotiate

The lenders mainly depend on your CIBIL report and CIBIL TransUnion Score to decide the terms and conditions of the loan. When you have a good credit score, you have the leverage to bargain on the terms of the loan and it serves as a powerful collateral and is an added advantage when you know that you are an ideal person that the lenders prefer to give credit.