10 Frequently Asked Questions About Credit Scores You Need To Know

general question

If you want to take a personal loan or any other loan for yourself, then you need to have a good credit score. Being eligible for a loan means understanding whether you have good credit or not.

What is credit score?

Your credit score is a number that outlines your credit information on a credit report. It shows the creditworthiness of an individual and shows the banks how likely you are to repay your loan. This three digit number ranges from 300 to 900 digits. If you do not have a credit score, it is difficult to get a loan.

Is my credit score important if I want to take a loan?

Your credit score plays an important role in the loan application process. When you fill out an application form and submit it to the banks, the bank first checks your credit score and then gives your report. If you have a low score, the bank may reject your application or, the bank may give you a loan at a higher interest rate. If the score is high, the bank checks whether you are creditworthy. Overall, a higher score means that the chances of getting the loan are increased.

Are CIBIL Score and Credit Score the same thing?

Credit score is a numerical expression that gives the bank an idea about the financial credibility of an individual, there are credit bureaus that verify your credit score. Credit Information Bureau (India) Limited or CIBIL is the most popular credit bureau in India that provides credit scores to individuals.

How is credit score negatively affected?

Some of the reasons that can adversely affect your credit score include many personal loans like irregular EMI repayments, high credit inquiries by financial institutions and banks, credit card defaults, payments after due date, check bounces, highly unsecured payments. Over utilization of the sanctioned credit limit and frequent rejection of unsecured loan applications is also one of the reasons.

How long do negative and adverse effects on my credit report last?

Typically, no adverse information remains on your credit report after seven years. In cases when you are hit by bankruptcy, it closes after ten years.

Does applying for a loan lower my credit score?

Loan applications greatly affect your credit. This is because about 10% of your credit score comes from the credit-based applications you make. Every time you submit a loan application, the bank will place that inquiry on your credit report. Multiple inquiries occurring at the same time give an impression that you need a loan which is not a favorable sign. Hence, it can lower your credit score.

How do you build credit?

There are five essential factors that need to be taken into consideration like your payment history, average credit age, credit utilization, inquiries and account mix. Make sure you make your payments on time and use credit carefully. It can take years to build your credit but being patient while doing so comes with good results.

Will checking my own credit report hurt my credit score?

You won’t hurt your credit score by checking your own credit report. Credit inquiries are generally classified into hard and soft inquiries. Checking your own credit report comes under an easy enquiry. These types of inquiries do not harm your credit score in any way. In fact, it is imperative to review your credit report at least once a year. It helps you identify any mistakes and take measures to rectify them.

What is included in a credit report?

Your credit report comes with your name and address, the amount you are currently payable to lenders, if you are on the voter list at your current address, any default or late payments on loans and credit cards, bankruptcy/country Court decision/possession as well as in the form of individual voluntary arrangement. This includes joint financial products as well as mortgages between partners such as affiliate accounts.

What if my score is ‘NA’ or ‘NH’?

Having a score of ‘NA’ or ‘NH’ is not something you should worry about. This isn’t bad because it could mean that you have no credit activity in some years, you have no credit history, or you have all add-on credit cards and minimal credit exposure. Although this in itself has no negative connotation, some banks do not offer loans to people who have a score of ‘NA’ or ‘NH’.

Understanding these frequently asked questions helps you understand the concepts that revolve around credit scores. Here’s hoping that most of your questions have been answered, and the process that enables you to get an instant personal loan online or through a more traditional approach, makes the process a little easier.

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