BT Insight: Why do you have to worry about your credit score?

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HIGHLIGHTS

  • Frequently Examine Your Credit Score As You Go Through The COVID-19 Crisis
  • With higher digital transactions, you need to make sure that the correct data is reported
  • It is your responsibility to correct errors if incorrect data has been sent to the credit bureaus
  • You can get a free credit report every year from every credit bureau
  • Additional reports cost at least Rs 100 or more
  • Banks and third-party platforms can also help you access reports
  • In addition to loans, credit score is used for employee selection and identity protection
  • Once ringing, improving your credit score takes a long time

Millennials known for instant gratification, even on credit, learned important personal finance lessons as the coronavirus crisis unfolded. The burden of paying EMIs when you’ve suffered a job loss or a pay cut is too much to bear, in most cases plunging you into a spiral of debt. If this has happened to you, your problems may reach the limit if you are not careful with your credit score. While in general you may not be in the habit of checking your credit score frequently, you need to be proactive about it now that you are going through the crisis.

“It is extremely important to take stock of your cash outflows in the current situation. If you have opted for a moratorium on loans, you should know that this is a postponement, not a waiver. Schedule your repayments now lest it affect your credit score after the moratorium. Regularly checking your credit score has become more important than ever. With many digital transactions, you need to make sure that the right kind of data is being reported so that you are on top of your finances and ready for credit in the future, ”says Sujata Ahlawat, Vice President and Interaction Manager direct with consumers, TransUnion CIBIL.

We tell you all about your credit rating and the need to maintain it:

What is a credit score

A credit score is a three-digit number that indicates your ability to repay the loan based on your credit behavior, including the loan repayment history. Your bank shares your credit information as well as your personal information with the credit bureaus, which maintain a credit report for each borrower. There are four RBI approved credit bureaus in India: TransUnion CIBIL, Equifax, Experian, and CRIF High Mark. Although their credit scores differ from each other, you need to follow similar metrics to maintain a high score.

According to Adhil Shetty, CEO of BankBazaar.com, these metrics include full and timely repayment, low credit utilization rate, long life of lines of credit, and number of open credit accounts. “Overall, a score over 750 should help you get some of the best loan and credit card deals from most banks and lending institutions. However, the use of credit score as a risk scoring tool differs from lender to lender. Shetty said.

RBI Moratorium and Your Credit Score

Although the Reserve Bank of India has made it clear that opting for the EMI moratorium will not affect your credit score, you should still check whether or not it has happened. “If customers have made use of a moratorium, they can first check their credit report to verify that the invoked moratorium has been correctly reported by banks or NBFCs. If it was not reported correctly, they can contact the lenders and make a request to correct the error, ”says Navin Chandani, Managing Director and CEO, CRIF High Mark.

How to check your credit score

The RBI clarified that every credit bureau is obligated to provide a free credit report to every customer who requests it, after which you must pay a certain amount. The fees differ from office to office. For example, CRIF High Mark charges Rs 399, while Equifax Rs 100. TransUnion CIBIL offers monthly, semi-annual and annual subscription service of Rs 550, Rs 800 and Rs 1200, respectively. “It gives you access to the entire credit dashboard where you can log in regularly. Whenever there is a change in your score, CIBIL alerts let you know, ”explains Ahlawat of TransUnion CIBIL.

There are third party platforms like CRED, Bank Bazaar and PaisaBazaar etc. who provide free credit reports. You can also benefit from it through netbanking if your bank has a connection with the credit bureaus for this purpose.

Why do you need a credit score

There might be consumers reluctant to take on debt who do not intend to take out a loan in the future. They are okay with not having a credit score. However, the credit score is not just about getting a loan. Its field of action has widened. “The way the industry is changing and everything goes digital, the credit profile has become so much more than just a loan. The CIBIL score is used for many other factors such as job selection and identity theft protection. So if you don’t have a credit profile, it’s safe to create one, ”says Ahlawat of TransUnion Cibil.

Building a credit profile doesn’t mean you have to take out big loans. You can have a credit card that you can use for small purchases. “It doesn’t have to be a specific type of loan. Benefit from a short-term, durable consumer loan (purchase of a cell phone, laptop, etc.)

How often to check your score

You should check your score regularly because every month your banks submit your credit information to the agencies. “The credit score may change at a minimum on a monthly basis if no other credit related activity is performed by the borrower during the month. It is therefore advisable to check the credit score every one to three months.” says Manu Sehgal, Business Development Manager, Emerging Market, Equifax.

Does the frequent monitoring of your credit score? No, it doesn’t, as these are minor inquiries that don’t lower your credit score.

How to maintain a good score

Obviously, you need to repay all your dues on time to maintain a good score. The higher your credit score, the lower the interest rate you will earn on loans. But, you should avoid making loan requests quite frequently, especially when a bank has rejected it. “Don’t rush to reapply with another bank because they might see your rejection by the previous bank. It could hurt your credit score further and make matters worse,” says Chandani of CRIF High Mark.

If you use a credit card, get into the habit of paying all overdue payments instead of minimum dues. While this does not affect your credit score, it does make you likely to overuse your credit limit. This indeed affects your score. “If the borrower only pays the minimum amount owed, it is possible that the borrower is using a high percentage of their sanctioned credit limit and this could have an impact on the credit score,” says Sehgal d ‘Equifax.

How to improve a bad score

You never want to hurt your credit score because improving it is a long and tedious process. The common myth is that a bad credit score can be immediately improved once all overdue / default payments are made. But that’s not how it works. “The credit score takes into account many years of historical data and once deteriorated it will take some time to improve when recent positive behavior outweighs past negative behavior,” Sehgal said.

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