Do You Want a Healthy Credit Score?
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:
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.
- Make your debt payments on time and regularly. This will have the most significant impact on your credit score.
- 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.
- 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.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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