X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Do You Want a Healthy Credit Score? - Outside View by PersonalFN
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Do You Want a Healthy Credit Score?
Feb 7, 2013

Let's first start with the basics, as not a lot of people know what a credit score really signifies.

What is a Credit Score?

Your Credit Score is a score that is provided by a credit information company (for example companies such as CIBIL, Equifax, HighMark) to a prospective lending institution, that will tell the lender how good or bad a borrower you have been.

The clear indication is that the higher your credit score, the better a borrower you are. This means that you probably make your payments on time. Hence lenders that lend to you face a lower risk that you will default. And vice versa - the lower your credit score, the higher the risk that you will default.

A score of 78% is considered a 'Good' credit score to have, while a score of 83% or higher earns you the proud tag of 'Excellent'. A score of less than 70% means that if you want a credit card or want to take a loan, you are probably going to face a difficult time. As the situation stands today, lenders will restrict you if your score is poor by possibly charging you a higher rate of interest on a loan to balance out the additional risk you pose, but sadly they are yet to reward those borrowers who have a high credit score.

How Do I Find Out My Credit Score?

The Credit Information Bureau of India Limited (aka CIBIL) will give you your credit score; you just have to follow the simple steps given on the CIBIL website. There is a nominal fee of Rs. 470, which is non-refundable.

If My Credit Score is Low, How Do I Fix It?

There's no shortcut here. Those individuals who have a low credit score due to poor borrower behavior in the past, can improve their credit scores by paying their dues on time, repaying any late pending dues, and ensuring that they do not default on any payments in the future. It will take time, but small sure steps will definitely raise the score.

If your credit score is low not due to past indiscipline but due to an error on the part of a lending institution or on the part of CIBIL, do notify both the institution and CIBIL immediately.

Who Can Help Me Get Out of Debt and Fix My Credit Score?

If you have built up too much debt and don't know how to handle it, your score is almost certainly suffering. Repaying your debt and emerging from the debt trap should be your first priority. Doing so will automatically improve your score.

There are credit counseling organizations that can help you fix your debt situation. These agencies are typically non-profit organizations, so fees are minimal, if there are fees at all. A credit counseling agency will create a debt management plan for you, aka a DMP, negotiate with the lender on your behalf, and try and get you a lower rate of interest to repay your pending debt. You will also receive some peace of mind, simply knowing that you are not alone in your repayment of debt.

For both situations i.e. correcting an error or getting out of a debt trap, you can contact Abhay (started by the Bank of India - but handles cases of all individuals regardless of whether you are a BoI customer or not), or Disha Trust (started by ICICI Bank - which will also help all individuals), or any other credit counseling agency you deem fit to help you out.

Your 3 Top Tips

We promised you 3 top tips that will keep you out of debt trouble and keep your credit score healthy, and here they are:

  1. Make your debt payments on time and regularly. This will have the most significant impact on your credit score.

  2. Try and avoid having more than 2 credit cards. This will ensure that you don't keep credit limits that you don't really require.

  3. If you are planning on taking a new credit card or a new loan, do it in a short span of time - don't drag out the process. If you stretch the process over months, it will look like you have spent a lot of your time seeking credit, and this will reflect negatively. Do your research quickly, and take the loan.
To make sure you don't take more debt than you can handle, have a financial plan in place. One of the many benefits of a Financial Plan is that it will show you how your cash flows are structured year on year, and accordingly you will know how much EMI you can afford to pay in the coming years.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Do You Want a Healthy Credit Score?". Click here!

2 Responses to "Do You Want a Healthy Credit Score?"

Kabir

Sep 30, 2013

My loan was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review

Like 

baalachandran

Aug 8, 2013

My application was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review.

Like 
  
Equitymaster requests your view! Post a comment on "Do You Want a Healthy Credit Score?". Click here!

More Views on News

The Right Financial Advisor Is Around the Corner (Outside View)

Mar 10, 2016

An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

Why financial planning should be dull and boring (Mutual Fund Corner)

Feb 29, 2016

Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

More Views on News

Most Popular

Here's What You Should Do in this Market Crash(The 5 Minute Wrapup)

Feb 6, 2018

The market correction has provided a golden opportunity to buy five high-quality safe stocks.

As the Market Corrects... It's Time to Buy More(Smart Contrarian)

Feb 5, 2018

The recent sell off in the stock market offers buying opportunity in some quality small caps.

The Era of Easy Money is Coming to an End. What Happens Now?(Vivek Kaul's Diary)

Feb 9, 2018

The easy money policy of the Federal Reserve of the United States, which drove up stock markets all over the world, is ending, with the Federal Reserve looking to shrink its balance sheet.

When Small is Not Always Beautiful(Chart Of The Day)

Feb 6, 2018

Big companies enjoying tax deductions and exemptions have an edge over the small companies.

What Should Mutual Fund Investors Do After LTCG Tax Norms(Outside View)

Feb 6, 2018

PersonalFN explain what investors should after LTCG tax norms.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS