MONEY MATTERS – Keep your credit score high always
There were two friends Ajay and Vijay. Both worked in the same company, in the same department and were drawing almost the same pay. However, Ajay was conservative and did not like to take loans or hold more than one credit card. On the other hand, Vijay believed in purchasing everything on credit. Be it a TV, sofa or fridge, everything was bought with a loan because credit was easy. Also, he had many credit cards, issued free by banks, and he used them quite liberally.Ajay applied for a home loan and was immediately sanctioned one. Vijay also applied for a home loan at the same bank, but his loan application was rejected. Why? The reason is his credit score. Ajay had a credit score of 780. Vijay had a credit score of 325.
One of the important criteria for getting a home loan is the credit score you have. Having a good credit score is a prerequisite to get a home loan. In case you have a low credit score, there are chances of your loan application being rejected by the bank or you may get the loan on stringent terms and at a high interest rate.
The credit score is given by the Credit Information Bureau of India Limited (CIBIL), based on the credit history of the individual. This score is a distinct number assigned to an individual based on an analysis of the person’s credit report. It shows the creditworthiness of the individual. A high credit score indicates a good credit history the person repays loans on time. The credit score of an individual varies between 300 and 900. A score of more than 700 is usually considered good and the person will be eligible for loan. For a score that is below 350, there will be a strict ‘no’ in response to a loan request.
BASIS OF CREDIT SCORE
The credit score depends on a number of factors.
Loan repayment history Number and frequency of default or delay in repayment Total amount of debt held at any point in time Types of loans availed home loan, personal loan, car loan, credit card loan etc Number of applications made to different lending entities for a loan If you make timely repayments on loan dues, it will improve your credit score. Further, unnecessary indulgence in loans is not advisable. Borrow only in case you need the funds, and if you are sure you can repay in time.
Having many credit cards may impact your credit score adversely. Also, any delay in repaying credit card dues, or having large sums outstanding and overdue, will have a severe adverse impact on your credit score.A greater share of unsecured borrowings from banks or on credit cards has a more negative effect on the credit score as compared to secured loans. Applying for a loan simultaneous with many lenders, or frequently, has a negative impact on the credit score too.
As soon as you apply for a loan, the bank will refer it to CIBIL. Whenever an enquiry is made with CIBIL, it reflects in your credit report. The higher the number of enquiries, the lower your credit score dips. Too many loan requests adversely affect your credit score.
GOOD SCORE, BETTER TERMS
Having a good CIBIL score gives you the leverage to negotiate the terms in a more favourable and positive manner. Banks will be more than willing to offer a loan.