For years borrowers have been evaluated based on a simple 3-digit number i.e. the Credit Score. It is known to play a determining role on your loan approval and the overall cost of the loan. Every lending platform has access to it. It has been mind-boggling for borrowers to understand the importance of this score. So, what is this number all about? Is it the only parameter to determine your creditworthiness? Or is it much more than that?

This blog will answer some of your major queries about the credit score and the importance of increasing your credit rating. Keep reading till the END!

What is a Credit Score?

A credit score is a numerical expression that represents the creditworthiness of a borrower. It is primarily based on a credit report information sourced from various credit bureaus. To some extent, it predicts the credit utilization behavior of any borrower.

How Many Credit Scores Do We Have?

In India, 4 credit bureaus have been approved by RBI. These are:

TransUnion CIBIL:  Score varies from 300 to 900

Equifax:  Score varies from 300 - 850

CRIF Highmark:  Score varies from 300 to 900

Experian:  Score varies from 300 to 900

These are the collection agencies that gather your account information, repayment track, bill-paying habits, and your financial behavior. They provide this information to Credit Information Company (CIC) and to other private lending platforms in India. No matter where you apply for a loan, the lending platforms will make an inquiry of your credit score to either CIBIL, Experian, CIRF or Equifax, to guesstimate the credit risk.  

As a Peer to Peer Lending platform, FAI₹CENT, utilizes TransUnion CIBIL credit score to assess a borrower’s creditworthiness.

Why Good Credit Score?

1. Easy Loan Approval

Your credit score has a direct impact on your loan approval. Every lending institution has a minimum score standard below which their credit policies do not allow them to entertain any loan request. Armed with healthy credit score your chances of loan approval are strong. While a shaky credit score may result in outright rejection.

Before you apply for a loan, you must find out what your credit score is? And is it above the minimum threshold set by the lending platform?

2. Lower Rates on Loan

Interest rates on loan are not the same for all borrowers. Instead, these are based on risk-based pricing.

Individuals and businesses with delinquent repayment record or law adjudicated debt obligations have to pay higher rates than who don't have these issues. Additionally, lending platforms also screen borrowers based on their employment record, assets, casualty insurance, and other personal and financial parameters. Your credit score helps to predict your future behavior, whether a borrower will be a good risk or a bad debt! The higher your score the greater will be the negotiation power with various lending platforms.

If you are thinking to apply for a loan, with FAI₹CENT, your CIBIL score will be taken into consideration along with other credit risk factors. With a high CIBIL score, you can get a Personal Loan at an interest rate 12% per annum and upwards.      

3. Lower Rates on Insurance plans

It might be surprising for you - Most people think that insurance companies only call to sell policies and you are the one who will be paying the premiums. But, do you know all insurance companies, auto or life insurance, checks your credit score as well?

These Insurance companies assess the risk associated with an individual before offering a premium rate. If you are making all your payments on time in the past, these companies will offer you a low premium rate. Although a low credit score is not a reason to deny an insurance coverage, however, your premium rates might be high.

The credit score awareness in India is at an abysmal level. More awareness needs to be created among individuals and businesses to maintain good credit health. Now that you know the importance of a decent credit score, listed below are repairs and rebuilding strategies for your credit score.

How to Turn Your Credit Score into Success?

1. Always Pay your Bills on or Before Time

It is the most basic and highly effective strategy to get started with the credit score repair process. Clean payment history displays your ability to make payment commitments in time. It will show to lenders that you are not a bad bet anymore, instead, you are a risk worth investing.

All you need to do is schedule your payments to pay them in time. Your smartphone can do it for you, use those clock-in reminders or install some apps, let the SIRI notify you about your payments such as utility bills, electricity bills, and credit card dues.

It may be a slow process but then nothing can magically rub away past delinquencies from your credit report.

2. Lower Your Credit Utilization Ratio

Thinking what is – Credit Utilization? It is just a fancy financial jargon for how much revolving credit line you have exhausted in comparison to how much available credit you have. In simple words, it is your usage ration.

If it is less than 30% (meaning you have maxed out 70% of your credit line) – the lenders may see you as credit hungry, which puts you into a high-risk category. The 50% of credit utilization ratio is the threshold. To repair your credit score, keep it near to 49% of usage ratio. It’s not that difficult.

3. RIP Credit Cards!

In line with repairing your credit score, the lesser credit cards you have the better your chances are of improving your credit score. What are you doing anyways with those 10 varieties of credit cards? That collection is not going to impress anybody. TBH, it only exhibits how lifelessly you are debt-drenched!

In order to close your credit cards, note that – You must close the new cards and keep those old credit cards alive. Old credit cards are optimal proof of your credit history. You must keep them thriving. Close all other cards, just one or two of the oldest your credit cards, whose credit utilization is not more than 49%. Remember! So, no more shopping on the credit cards, until you rebuild your credit score. It is achievable!

4. Maintain an Error Free Credit Report

It is also possible that your credit score is low due to some machine generated inaccuracies. Review your credit report for errors, including incorrect addresses, names, wrong transactions, and other false claims. After correcting these errors, your credit score will get automatically improved.  

You can ask our Credit Risk Managers to review your credit report for Free! It is the easiest step to improve your credit rating. Subsequently, you can check your Loan Eligibility and negotiate the best loan rates that suit your budget. 

Final Advice!

The credit repair is a process. It will help you in millions of ways. So, always make your payments on time!