Know what Credit Score means in Daily Life

Credit Score’-sounds like a heavy technical finance word. (I often use it to impress my non-finance friends. Trust me, it works like a charm! 😉 )

But hey! -Why are we even talking about it here?

Well, what if I tell you that these two words have a considerable and far-reaching impact on your life?

That they can shatter your humble dream of buying that 2 BHK near your crush’s apartment, of showing off your swag in the latest sedan or finally beginning your own start-up (even if it is a revolutionary idea) to pieces.

Really? How?  You would ask me.

Really!

It is because banks check your credit score before granting you any loans whether it is home, car, personal or business loan.

But it’s not just banks who may take your credit score into account – surveys have found your credit score can affect everything from whether you’re able to rent an apartment to who may be willing to date you.

  • Insurance companies – check your credit score before giving you any insurance policies. The higher your score, the better your insurance rates may be.
  • Credit Card companies –check your credit score before handing over that exclusive Platinum card to you.
  • Utility companies – electricity, phone, and cable – check your credit score as part of the application process. Yep, cell phone companies check your credit too! Want to buy the latest I phone 7 (On EMI of course). Guess what you need? A good credit score!
  • Certain jobs – especially those in upper management or the finance industry, require you to have a good credit history. They want to see if their cash and assets are in safe hands.
  • Landlords, property managers, and rental agencies – review potential tenants’ credit reports. They look for a pattern of missed payments or other negative information which may require you to pay a larger deposit.

(I know you suddenly have the urge to check your credit score. We will come to that soon!)

Firstly, what exactly do these two words mean?

A credit score is actually a numeric summary of your credit history. It can range from 300 to 900. Generally, the higher the number, the more trustworthy you appear to lenders. The lower your score, the more difficulty you will face.

Credit history comprises the number of times you paid your loans on time, your credit card bills on time, the percentage of total credit limit that you are using, the age of your credit cards and loan accounts (the older, the better).

In India, there are four credit information companies licensed by Reserve Bank of India (RBI) –

  • Credit Information Bureau India Ltd. (CIBIL)
  • Equifax Credit Information Services
  • Experian Credit Information
  • High Mark Credit Information Services.

The most popular one is the CIBIL credit score. This score ranges from 300 to 900, with 900 being the best score.

Living within your means, using debt wisely and paying all bills—including credit card minimum payment on time, are some of the smart financial moves to help you improve your credit score. It reduces the amount you pay for the borrowed money and put more money in your pocket to save and invest.

However, a lousy credit score doesn’t either mean you’re a bad person — it might just mean you put some unexpected bills on a credit card and had trouble paying, or that you missed a car payment when you lost your job. See below what can give you a bad score

  • Paying credit card bills late
  • Not paying credit card bills at all
  • Defaulting on a loan
  • High credit card balances
  • Having an account charged off

 

 

 

 

 

And now the one you had been waiting for – How to check your credit score?

Official CIBIL website- You can get your credit score by filling the ‘CIBIL Online Credit Score Request Form’ and paying a nominal price for the report. You will be asked your PAN number, DOB etc. to complete this form.

https://www.cibil.com/creditscore/

  • Websites like paisabazaar.com and bankbazaar.com – actually provide you with a detailed report on your credit score absolutely FREE!! You can know your chances of getting a loan approval easily.

Now the time for good news!

The RBI had mandated every credit information company in the country to release one free full credit report to every individual from January 1, 2017. It is supposed to be a detailed report carrying the records of your credit history, including repayment track record of all your credit card bills and any current or previous loans. You can apply for it once a year between January and December from one of the credit information companies.

So what are you waiting for? Go and quickly find out your credit score. Or better still, go and impress your IT friends with some finance jargon! 😉

 

Keep More Than One But Forget None

This article has been contributed by our guest contributor Anchal Beriwal and edited by Fintuned team. The article is a good read for people in the age group 25-50.

Confused with the title of the article?

Well, today I came across a Business Insider post that mentioned the thinking differences that exist between rich (could be read as successful in today’s parlance :P) and average people. While I am not completely vocal about the way the article/piece was positioned, there was a line that has remained with me, which said:

“Rich people make money out of other people’s money while the average people think that one needs money to make money”. Again, I don’t support the statement as such and it is absolutely subjective but the part that you can use money even when you don’t have it reminds me of something.”

You probably guessed it right? It absolutely reminds me of credit cards 🙂

I am sure John Biggins might have fallen short of cash and therefore, thought of this idea and invented credit cards. In India, credit cards have always been an adverse money leverage option for people. However, as more options are available and with an increase awareness regarding the use of plastic money, Indians have begun using plastic money proactively. Probably, it is right if I say that we are aping the west in our spending culture as well. Truth be told, credit cards do have some indispensable benefits. For example, fulfilling immediate liquidity requirements and building positive credibility are a few of the positives.

But why am I harping on the benefits of credit cards? No, I do not represent any credit card company nor intend to be with one. This is because as we get accustomed to using credit cards, it is all the more important that we use it smartly.

Most of the banks provide privileges and schemes on applying for their credit cards resulting in a wide array of options to decide from.  For example

Love cash > go for cards that give cash backs

Love free stuff > go for those that offer freebies

If I may credit cards also come in different flavors. There are the superfluous travel credit cards that offer credit services on travel, hotel stays and conveyance and then there are awesome cards that provide credit facilities on meals in food joints and restaurants. Therefore, it is good to have more than one credit card, if you can manage them well.

In case you skipped that last sentence, read it again. To be absolutely specific and repetitive (not annoying :P), keep more than one credit card, if you can manage them well, which means payment of bills, maintaining limits etc.

*Do not screw your credit score

As a corollary to the last section, let me mention about something to take extra care of i.e. your credit score (am sure you know all about it). In case you are not aware,  RBI has entrusted CIBIL, Equifax and Experian to maintain the credit scores. CIBIL or the Credit Information Bureau (India) Limited being the oldest is more popular. These organizations collect and maintain records of every person regarding his loan and credit card transactions. These records are then used to prepare Credit Information Report (CIR) and credit scores and provided to banks and financial institutions to evaluate the credibility of a person.  Read more about it here.

#Quick tip: Simply owning more than one credit card does not affect your credit score in any way. The credit score depends on two things and they are payment of credit card bills and usage patterns.

As such, coming back to the point of having more than one credit card, it increases your overall credit limit. Owing to division of usage over more than one card it results in low usage per card. The lower the percentage of outstanding debt, the better the credit score.

Better offers, better credit scores, higher discipline etc. are some of the amazing benefits that ensue when you keep more than one credit card. So, what are you waiting for? Go ahead and experience it for yourself 🙂

Cheers