Maintaining a good credit score is essential. And, to do so, one requires patience and discipline. A poor credit score reduces the chances of getting loans and, if a loan is sanctioned, it is likely to be on unfavourable terms. It is extremely difficult to correct a poor credit score. Moreover, a poor credit score would cause lenders to have serious doubts about the person's credit health.
Credit information and scores are maintained and calculated by Credit Information Companies (CICs) authorised by the Reserve Bank of India. “Credit scores are relevant not only when you have an active open line of credit in the form of loans or cards,” says Adhil Shetty, CEO and cofounder, BankBazaar.com. “The credit score of people who do not have any financial liabilities is also calculated. The score takes into account everything that deals with how one manages one's funds. It plays a pivotal role in an individual’s financial journey and provides the first impression for the lender; the higher the score, the better chances of the loan or credit card being approved.”
A good credit score means quicker and hassle-free approval of loans and credit cards, lower interest rates, easy approval of rented or leased houses, more negotiating power and higher loan limits. Even if a person's credit score is currently bad, says Shetty, he should be extra vigilant and prompt in paying off credit card bills and other utility bills so that the credit report does not show any major defaults. Also, owning too many credit cards shows that the person is hungry for more credit and it lowers his chances of receiving additional credit when actually required. Moreover, using multiple credit cards, says Shetty, makes it difficult for the person to track payment due dates and this increases the chances of defaulting.
“Opt for a right mix of secured and unsecured loans as the latter, like personal loans and car loans, generally affect the credit score negatively,” he says. “Secured loans like home loans, on the other hand, are invested towards asset creation and affect credit score positively.”
Experts say credit report must be checked regularly and, if the person has a bad credit score, he must check if all the information provided is correct and up to date. If not, he must report it to the Credit Information Bureau Limited (CIBIL) immediately. “When making payments on time or rectifying defaults and delays, ensure your credit card issuer or bank records and reports this to CIBIL,” says Shetty. “At the same time, one must also avoid applying for too many loans as each time you apply or inquire about loans from a bank, an inquiry is made. When more banks tap in to find out your credit score, it is taken to mean that you are desperate for credit. Whenever an inquiry is made with CIBIL, it reflects on your credit report. The more the number of inquiries, the more your credit score dips.”
A good way to improve credit score is to keep inquiries to a minimum and by getting a copy of the score personally. Also, the person should approach banks that will lend money at the most affordable rates rather than going to many banks.