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Cibil Score: How to check credit score free? How to improve it?

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The term CIBIL score, also referred to as Credit score is a numerical representation of your credit-worthiness. CIBIL, which stands for TransUnion CIBIL Limited is an Indian company that has access to your credit information. A CIBIL score is a three-digit number which ranges from 300-900, 900 being the highest. These scores are calculated by the credit bureaus of the country after taking into consideration factors like the length of your credit history, repayment records, credit inquiries, etc.

A Credit score is important as it shows how dependable or risky you are as a borrower. It allows the lender to justify whether you should be lent the money or not. Like individuals, even businesses are given credit scores. A business credit score impacts the ability to get a good investment and also enables the lender to judge how creditworthy your company is.

Is Credit Score and CIBIL Score the same thing or Diffrent?

Credit scores are offered by many companies. In India, there are four credit companies namely Credit Information Bureau (India) Limited (CIBIL), Experian, Equifax and High Mark that function under Reserve Bank of India. However, the best and popular among these companies is CIBIL, whose credit score ranges between 300 to 900. People who have no credit history have a CIBIL score of -1 and people with a credit history of fewer than 6 months have a score of 0.

How to Check  Your Credit Score Free ?

Steps To Get Your Free Credit Score

steps to check credit score

  • Log in to https://www.bankbazaar.com
  • Click on the ‘Get your FREE Credit Score’ option on the homepage.
  • Select your gender and age.
  • Select the city where you are currently residing
  • Mention your occupation, whether salaried or self-employed. If salaried, mention the name of the company.
  • Specify your fixed net monthly salary.
  • Fill in the required details like your first name and last name.
  • Mention your contact details. Namely your phone number and email.
  • An OTP will be sent to your mobile phone for verification purposes. Type the OTP in the space provided.
  • Enter your PAN card details.
  • You will now get your free credit score.

Credit Score Range and What it Means?

A credit score ranges between 300 to 900, 300 being the lowest and 900 being the highest. A higher score enhances your chances of getting an attractive deal on loans and credit cards.

Stated below are the different credit score ranges:

good credit score

NA/NH: To calculate your  score, you need to have a credit history. If you do not have any credit history, your credit report will mention that your credit score is NA (Not Applicable)/NH (No History).

300-549: A score between the ranges of 300-549 is said to be a poor credit score. It suggests that you are not a responsible borrower, have defaulted payments and unpaid dues.

 550-649: A score between this range is considered average. You will need to take measures to improve your score.

650-749: A  score in this range is considered a good score and the lenders would be willing to offer you credit in the form of a loan or a credit card. However, you still might not be in a position to negotiate a good deal.

750-900: With a score between this range, lenders would be willing to offer you cheaper interest rates. You also get the opportunity to negotiate for a better deal on interest rates and credit cards along with better rewards and benefits.

Who Computes Credit Score?

The Credit score is computed by Credit Information Companies namely CIBIL TransUnion, Experian, Equifax, and High Mark.

When you make a transaction, the bank sends details about it to all the four credit card bureaus. To send details to these bureaus is a mandate by the RBI. If a bank needs to check your credit score, they can approach any one of these bureaus.

After receiving information from the bank, credit bureaus get down to collect more information about your financial habits from other banks and financial institutions. After processing this information, the banks formulate a Credit Report. This Credit report is your financial marks card which contains your credit score.

Why Should I Check My Credit Score?

Your credit score reflects your creditworthiness. Good or bad, it is necessary to know where your credit stands. It is the best way to measure your line of credit. Also, if you check your score you can find out if any error has been made by the credit agencies while computing it. Hence, you can make timely amends.

Do the Four Credit Agencies Compute Scores Differently?

The process followed by these agencies in computing your score might vary from one to another, but the score calculated by all would be the same. This is because the bank furnishes all the information to all four agencies and no matter which agency the bank picks to check your score, there will be hardly any difference.

CIBIL is the most popular among these four agencies as it is one of the first Credit Information Companies to start its operation in India. This is the reason why people believe that the CIBIL score is the most accurate. However, this is not true. Credit Scores computed by Equifax, Experian, and High Mark are as good to banks and other financial institutions as the CIBIL Score.

Does my Credit Score Get Impacted if I Inquire About it?

It depends upon the type of inquiry made. There are two types of inquiries, a hard inquiry anda soft inquiry. While soft inquiries do not affect your Credit score, hard inquiries can send your score down by a few points.

An inquiry made by an individual is known as a soft inquiry. While a hard inquiry is one when a financial institution checks your Credit Score to take any decision on your credit application. Every time you apply for a Personal loan, Home loan or a credit card, the lending institution checks your score, and each time they check it, your score will fall by some points.

Change in Credit Score- How Often Does it Happen?

Credit scores are calculated from your credit report. When you request for the score from multiple credit reporting agencies, there may be a minor change in the figures. However, the difference won’t be huge.

To understand the changes in your credit score, you should know how many times there will be updates made to your credit report. Lenders usually report your credit information ( including both positive and negative remarks) to credit agencies once a month. So, there might be some changes in your credit scores every month depending upon the information that gets updated.

What Makes Your Credit Score Go Down?

Having high balances on your credit cards can reduce your credit score. Other than that, some of the other factors that can also affect your score are stated below:

  • Being late on your credit payments.
  • Ignoring your loan dues or credit card bills.
  • Creditors will charge off accounts when bills are not paid on time. This status of having your account charged off affects your credit score.
  • When the lenders do not receive their payments, uses third-party debt collectors to retrieve the loan amount from you. This might affect your credit score.
  • Filing for bankruptcy can have a bad effect on your credit score.
  • When you request to close a credit card that has an outstanding balance, your credit limit drops to Rs 0. This is also similar to the case when you have maxed out your credit card.
  • Closing old credit cards have a poor impact on your credit score as it shortens your credit history.
  • Applying for multiple credit cards or loans for a short tenure also affects your credit score.
  • Having only one type of credit account will adversely affect your credit score. Hence, you should maintain a mix of loans and credit card debts and make consistent payments on time
  • If you fail to check your credit report occasionally and fix the mistakes, your credit score will get affected.

How Does the Credit Score Affect You?

A bank or any other lending institution can check your credit score or report to review your credit management skills. Based on this review, they decide whether they would give you credit or not. Thus, before applying for a credit card or loan do check your credit score. If you have a bad  score and still keep applying for credit, then every rejection will further lower your score.

One with a good credit score stands a better chance at negotiating the interest rates.

Calculation of Credit Score

In India, there are four credit companies namely Credit Information Bureau (India) Limited (CIBIL), Experian, Equifax and High Mark that function under Reserve Bank of India. Each Credit bureau has its algorithm and method of calculating scores

The four major parameters and their impact on calculation are as follows:

 Payment History:

Payment history is one of the important factors that can affect your credit score. If you do not pay your EMIs and credit card bills on time, it harms your score. Thus it is advised to avoid delay as well as missed payments as they get reported and adversely affect your credit score.

Credit Exposure:

Also known as the credit utilization ratio, it is the amount of credit you use concerning the total limit you have at any given point. The Credit utilization ratio also has a high impact on your credit score. A low credit utilization ratio suggests that you are unable to handle credit adequately and also reduce your chances of getting better deals in the future.

Age of the Credit:

A long credit history has a good impact on your credit score as it gives lenders an insight into your repayment patterns with time. It reflects your experience in handling your credit effectively. Hence it is advised to keep your old credit cards open so that they have a long credit history as well as a good repayment behavior otherwise it can adversely affect your credit score.

Total Types of Account:

It is better to have a good balance of the secured loan (eg: home loan) as well as unsecured loans (eg: credit card) in your credit history. This suggests that you are an experienced borrower and can handle your credit effectively.

In addition to the type of accounts, the number of hard credit inquiries is also taken into account while calculating your score. Every time you apply for credit, the lender will pull up your credit report leading to a hard inquiry. Multiple inquiries in a short amount of time will affect your score and the lenders will be reluctant to offer you credit.

Benefits of Good Credit Score

Some of the benefits of having a good credit score are listed below:

  1. Low-Interest Rates on Credit Cards and Loans: If you have a good credit score, you will qualify for the best interest rates and would be able to pay less on credit card balances and loans.
  2. Better Chance for Credit Card and Loan Approval: Good credit score enhances your chances of getting approved for new credit or loan.
  3. More Negotiating Power: A good credit score gives you an upper hand in negotiating with the lenders for better interest rates on a credit card or loan.
  4. Get Approved for Higher Limits: Your borrowing capacity depends upon your income and credit score. If you have a good credit score, banks would be more willing to let you borrow more money because it reflects that you are a responsible borrower.
  5. Easier Approval for Rental Houses and Apartments: A bad credit score ruins your chances of getting into an apartment. A good credit score saves you the time and hassle of finding a landlord who approves renters with damaged credit.
  6. Better Car Insurance Rates: Insurance companies reviews information from your credit report and insurance history to develop your insurance risk score. Hence, if you have a good credit score, you will pay less for insurance than the ones who have a bad score.
  7. Avoid Security Deposits on Utilities: A good credit score suggests that you don’t have to pay any security deposit when you establish utility service in your name or transfer service to another location.

How Can I Improve My Credit Score?

  • Your repayment of outstanding debt can have a significant impact on your credit score. Hence, ensure that you make timely payments. Delay in EMI payments not only force you to pay penalty but also lower your credit score. Thus, you can set reminders for EMI payments sp that you can tackle them on time.
  • A strong and healthy credit card history will help you increase and maintain a good credit score in the future.
  • The more you can restrict your credit usage as per the allotted limit, the better it is for your credit score. You should get in touch with your lender and customize your credit limit based on your expenses.
  • Opt for a longer tenor when you apply for a loan. This will make sure that your EMI is low and you can make payments on time, which in turn will improve your credit score.
  • If you take multiple loans at once and unable to repay it on time, it will lower your score. Hence take a loan and repay it successfully to avoid your credit score from falling.
  • Check your credit reports from time to time. This will help you identify mistakes made by the agencies while computing your  score which in turn will improve your score.
  • Borrow a healthy mix of credits, both secure and unsecured loans of a long as well as short tenor to build a strong credit score.

What Are Credit Reports?

Credit Reports are a summary of an individual’s credit history. A credit report is used by lending institutions in making effective lending decisions. In a credit report, you would find information related to all types of loans and credit account along with basic details like name, date of birth, PAN card number, address, etc. You can also find details related to the last checking of your credit report by a lender. There are four major credit information companies (CIC) in India that furnish credit reports of individuals. The CICs collect the information from the financial institutions like banks as well as government agencies like the Income Tax Department while preparing your credit report. These reports help lenders in minimizing repayment defaults by avoiding those who have a bad credit history.

The following CICs gather an individual’s financial information to prepare credit reports in India:

 TransUnion CIBIL Limited:

This is one of the first Credit Information Company (CIC) of India that was founded in August 2000. The company receives the records of an individual’s repayment habits related to loans and credit cards every month and use this information to create Credit Information Reports (CIR) and Credit Scores. These reports and scores are provided to lending institutions to help them make a lending decision.

 Experian Credit Information Company of India Private Limited:

The Company has its headquarters in Dublin, Republic of Ireland. It uses its method of calculation to create credit reports. They collect information from banks or other financial institutions to prepare credit reports which in turn are bought by various banks of India.

 Equifax Credit Information Services Private Limited (ECIS):

Equifax is one of the largest credit reporting bureaus in the US with its headquarters in Atlanta. They provide credit reports for individuals as well as for businesses. It has tie-ups with various banks and other institutions in India that help the company in creating credit reports and assessing credit scores.

CRIF High Mark:

This credit information company specializes in analytics, scoring and credit management solutions. The company prepares credit reports based on the information provided by the banks, Income Tax Department as well as other non-banking companies. The credit reports from CRIF are available against a fee.

What are Credit Reports Used For?

The CICs evaluate an individual’s credit history to calculate a credit score which measures an individual’s creditworthiness. As against a high score, a low score can reduce your chances of loan application approvals. Most of the CICs will provide you a free credit score but might charge a fee for it. .

The credit reports give an insight into an individual’s repayment capacity. It also gives information regarding past payments such as late or missed payments which can adversely affect your score. When an individual applies for a loan/credit, the lending institution checks the credit reports to determine whether the applicant will be able to repay the loan. Some of the reasons for obtaining credit reports are stated below:

  • To Determine the creditworthiness
  • Reviewing missed/late payments
  • Checking the credit score
  • Reporting errors in the report
  • To analyze all the credit and loan accounts under one platform
  • Making effective lending decisions, etc.

The Application Process for Obtaining your Credit Report

Credit reports can be availed through both online and offline mediums. The online process will be quicker when compared to the offline one. The CIC will mail you the password-protected credit report to the individual when the report is requested online whereas when applied offline the credit report will be sent through postal/courier services.

The documents that are required for obtaining a credit report online are:

  • Name, Date of Birth
  • Residential address
  • PAN Card number
  • Identity authentication

The documents and details that are required for obtaining a credit report offline are as follows:

  • Visit the CICs website to download and fill out the form requesting for your credit report.
  • Self-attested and scanned copy of a Proof of Identity such as PAN card, Driver’s license, etc
  • Enclose a Demand Draft that is payable to the relevant CIC for the required fee.
  • Mail the documents along with the Demand Draft to the address mentioned on the CICs website.

What is the difference between a Credit Score, Credit Rating, and a Credit Report?

  • A credit score is a three-digit numerical number that reflects the financial credibility of an individual from a score ranging between 300-900 whereas in the credit rating the scores are assigned to businesses and companies. The credit report consists of information regarding your past credit and loan details.
  • A credit score or credit rating varies monthly depending upon the information collected from the banks or NBFCs but the information is stored on your credit report stays for many years.
  • The Credit score is numerical while the credit ratings are indicated in forms like A, A+, etc.
  • Some of the CICs offer free credit scores and ratings, however, credit reports are chargeable.

Differences Between Credit Report and Credit Score

  • A Credit report consists of your current and past credit agreements, for example, credit card accounts, student loans, credit card history, etc whereas credit score is like a grade to your credit report whose score ranges between 300-900.
  • A Credit report is a reflection of your credit management and you have control over what is listed there whereas the credit reporting agency assigns you the credit score based on your credit history.
  • A Credit report shows an outline of how much you owe your creditors to whether you are making payments on time or how long your account was open, etc whereas a score indicates that you are a low-risk borrower, making you more likely to qualify for a loan.
  • To get access to your credit report, you can approach the credit reporting agencies or use a credit monitoring service that offers you this information whereas a credit score is a part of the exhaustive credit report that you receive from the credit agency.

Is the Credit Information Report the same as the CIBIL Score?

A CIBIL Score is different from the report in the way that as the former represents a numerical expression derived from the processing of credit information, the latter is a detailed document containing all the credit information. Hence, it can be said that the CIBIL score indicates the credibility of an individual whereas the report contains information about his/her credit history.

Importance of Credit Reports for Companies and Businesses

CICs prepare business reports for businesses and other firms as well. These credit reports provide information regarding the establishment of these companies, owners, employees, liability, profit and loss, assets, if there are any pending court cases left, etc. These reports are reviewed by suppliers and government agencies while providing business contracts. It also enables firms in managing market risks by carefully choosing business partners and suppliers.

Understanding the Credit Reports through key terms

Following are some of the keywords which can help you to understand the credit reports if you are going through it for the first time:

NA or NH:If you have never owned a credit card or taken a loan, you will see an NA or NH on your credit score. This indicates that you have null or insufficient credit activity to create a report or generate any score.

STD: This indicates the individuals who make their payments within the due dates.

SMA: This applies to the borrowers who have delayed their repayments.

DBT: This refers to any doubtful situation if your credit information has remained inactive for 12 months.

LSS: A credit report can be marked as LSS if a lender reports the loan/credit card account as a loss or it has been a defaulter for a long period.

DPD: Days past due indicates the number of days the account has not received the payment.

Written Off/Settled Status: It refers to a situation when the borrower has not been able to make the repayment but agrees with the lender for any kind of settlement or repayment plan.

How to Read a Credit Report?

A credit report is a detailed report of a person’s credit history. Listed below are some of the points that you should consider while reading a credit report:

Personal Information:

In this section details like an individual’s residential address, his/her name, date of birth, current and previous accounts are given. An individual should check it thoroughly to see if there is any wrong information. If you find any error in the report, you have to report this to the Credit Rating Agency (CRA) as this can create a credit fraud if not corrected.

Account Information:

This contains details of your past and present credit accounts. Things you should check in this section are; Name of the creditor, date of opening, current balance, Highest balance/credit limit, monthly payment history, account type, (Installment, revolving, or open) account ownership (Individual or joint) and payment status. You should verify that all these details are accurate or not.

Public Records:

This section consists of a list of all the bankruptcies filed by the individual, tax liens availed or the collection accounts of the individual. The dates provided in this section should be checked as they will directly affect how long they will remain in the credit report and can affect the person’s score.

Inquiries:

This section contains the number of inquiries made by an individual regarding their score. The inquiries do not affect the individual’s score if they are soft inquiries by lenders for promotional purposes. But if one makes multiple inquiries or hard inquiries, it can have adverse affect on their credit score.

Why is the PAN card required for checking the credit score?

PAN Card is a necessary document which helps in identifying an individual through its unique identification number. PAN card makes it easier for the credit reporting agencies to locate one’s details efficiently. When you use your PAN card number to check your credit score, it enables you to locate your credit information and is used for authentication purposes.

Isn’t CIBIL the Deciding Factor in a Loan?

Your credit score is one of the important factors considered by the banks or other lending institutions while deciding about your loan or credit card application.

CIBIL prepares your credit reports which enable the bank to know about your creditworthiness. Also, they do not accept any requests for changing any financial details in credit reports. They only make changes if the banks give them relevant information to do so. This ensures that your credit report is licit.

 

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