Credit score is probably the first thing that lenders look into once they receive a credit card or loan application. By looking at the credit scores, lenders try to determine an applicant’s creditworthiness. Many banks and NBFCs use their applicant’s credit scores while setting loan interest rates for them. Thus, having a good credit score not only improves your odds of getting a loan but can also help in getting it at lower interest rates. Therefore, people should check their credit scores at regular intervals. Those who need more convincing can read the points below:
To Know Your Creditworthiness
Banks and NBFCs use credit applicant’s credit scores as litmus test to assess their creditworthiness. They usually prefer sanctioning loans to those having credit scores of at least 750. This is because applicants having such high credit scores usually practice greater financial discipline. Many lenders also offer lower interest rates and pre-approved offers to such applicants. Hence, everyone whether they are applying for a credit card/loan or not should practice checking their credit scores at regular intervals. Doing so will help them know their creditworthiness and give them sufficient time to take corrective steps to improve their credit scores, if found low. Being credit ready will also prevent their loans and/or credit card applications from getting rejected due to low credit scores.
To Identify Clerical Errors
Credit bureaus such as CIBIL, Experian and Equifax prepare an individual’s credit report based on the information provided by credit card issuers and lenders. While doing so, wrong information might be added to an individual’s credit report due to clerical error by lender/credit card issuer or the credit bureau. Such errors can cause their credit scores to drop and also lower their eligibility for securing credit in future. To ensure this doesn’t happen, individuals should always read their credit reports carefully. If they find an error in their credit reports, they should report it immediately to the concerned credit bureau and lender/credit card issuer for rectification.
To Detect Fraudulent Activities
Checking your credit report regularly will also help individuals in timely detecting fraudulent activities such as misusing an individual’s personal information to carry out financial transactions or obtain credit card or loans in the individual’s name.
To Avoid Unnecessary Hard Enquiries
Each time a bank or an NBFC receives a loan or a credit card application, they fetch the applicant’s credit report from credit bureaus to ascertain your creditworthiness. Such lender-initiated credit checks are known as hard enquiries. One or two hard enquiries do not have a substantial impact on an individual’s credit score. However, multiple such enquiries within a short period can cause their credit scores to drop. Therefore, it is best if everyone checks their credit report regularly. Doing so will give individuals a rough idea about their loan eligibility with respect to their credit scores and avoid multiple loan applications. Knowing their credit scores in advance will also help individuals in improving their scores and plan their loan applications accordingly.
A Few Tips On Fetching Credit Reports
In India, there are four credit bureaus — TransUnion CIBIL, CRIF High Mark, Experian and Equifax — each following its own credit scoring method to calculate an individual’s credit score. Due to this, the credit score of an individual may vary across credit bureaus, making it important for individuals to fetch their credit reports from each of the credit bureau at least once a year. Alternatively, individuals can fetch their free credit reports and monthly updates from online financial marketplaces. Such marketplaces could also suggest credit cards and loan offers based on the individual’s credit score and other aspects of his credit profile. Their monthly updates will also help them know of any changes in their credit scores, which further can help them in practicing financial discipline required for improving/ maintaining their credit scores. Those who want to know the steps for improving or building their credit scores and/or factors that impact their credit scores can read about it at Finshastra, a personal finance website where you can find blogs on a wide range of topics related to saving, budgeting, credit borrowing, retirement planning, etc.
