In A debt Trap? Know Your Rights As A Borrower
June 22, 2024
Have you ever wondered how lenders decide if you qualify for credit? Well, each person has a credit file which carries a score that decides importance Have you ever wondered how lenders decide if you qualify for credit? Well, each person has a credit file which carries a score that decides importance of credit score and how risky you are to lend to. This is known as a credit score. The higher your score the less risky you are to a lender. If you can keep a good credit score, this would mean that you are not as risky to lend to than that of a person who has a low credit score. This is normally determined by your consistency to repay and keeping up with monthly payments.
Your credit score can be adversely affected when missing a payment, every action you do regarding credit is recorded on your credit file and can affect you in the future when applying for further credit.
Managing your finances and importance of credit score helps to keep a good credit score. Paying your bills and credit card payments on-time is key to building up your score. According to financial experts, many consumers do not understand the importance of credit score credit score and are normally left wondering why they have been rejected when applying for credit.
It is imperative that you understand how your credit score is determined and what affects it positively and negatively. Here are some importance of credit score and avoid any negative affect.
A three-digit Cibil score in India, is basically a numerical expression that ranges from 300 – 900. 900 being the highest and 300 being the lowest score in the CIBIL table. If your civil score is 900 then you are eligible for getting a new loan from the bank, whereas if you are below 500 then there can be difficulty of not getting a new loan from the bank or they will neglect in offering you a loan. The credit score is given based on the analytics of the credit reports, files, and credit history, representing the creditworthiness of the consumer. This score is prepared by TransUnion CIBIL, one of the four credit bureaus functioning in India (other bureaus include Experian, CRIF High Mark and Equifax).
One of the most common mistakes that people tend to make is that they get confused with their credit report and credit score. In addition, people know what is included in a standard credit report. It is crucial to understand these two indicators because they both reveal a lot about your financial history and directly impact your financial future. Understanding your credit score and credit report will help you identify financial strengths and weaknesses as well as take steps towards financial stability.
While all the parameters mentioned by the credit bureaus determine the credit score, timely payment of credit card bills and loan EMIs are commonly said to carry the most weight. Therefore, it is necessary to make timely repayment of loans and credit card dues in steadily building or maintaining a good credit score.
Credit bureaus also reduce an individual’s credit score if their credit utilization ratio breaches this mark; credit utilization ratio is a sign of credit huger behavior. This therefore makes it crucial to contain the CUR within 30 percent to avoid a reduction in your credit score. If one’s credit utilization ratio breaches this mark, one should either request one’s card lender to raise the credit limit or [provide them with another credit card. This will help to increase their credit score, but the person should not end up spending more on credit cards.
Whenever a person submits a loan or credit application, the lender obtains the applicant’s credit report from the credit bureau to check their creditworthiness. Such lender-initiated credit report requests are termed as hard enquiries, each of which reduces the loan applicant’s credit score by a few points.
Instead of submitting multiple credit documents directly to the lenders, loan provider, or credit card applicants, one should visit online financial marketplace portals to select the optimal credit card or loan option after comparing with various offers available according to their credit score, income, and other eligibility criteria. The only impact that an online financial marketplace will create will be it does not affect one’s credit score as such enquiries are soft enquiries by the credit bureaus.
The credit bureaus calculate a credit score based on the information provided by creditors or lenders before granting credit cards or loans. If any of the information listed in the reports are false, due to errors made by the lenders or any fraudulent credit transactions in the borrower’s or cardholder’s name, it can adversely impact the credit score. Hence, to avoid such severe errors, one should fetch their credit reports at periodical intervals. Consumers should check their credit reports at least once a year. Alternatively, they can visit online financial marketplaces to get their free credit reports and their monthly updates.
A creditor or a lender will ask you to switch to a new credit card if you have been a credit card holder for a long time. This is because you are paying your monthly payments on time. They will offer you attractive discounts to entice you to buy the credit card.
The continuation of your credit card payments is the proof that you are paying your bills on dues. The age of your credit lines also has some impact on your credit score. The older your credit card is, the better your credit score will be. Therefore, cancelling an old card also cancels the boost you were getting from it.
A consumer’s credit score is the most essential number they should be looking for. Credit scores measure the creditworthiness of the consumer and can create a huge impact on their ability to make major financial purchases in the future.
Here are a few reasons why consumers should care about their credit scores:
Buying a house usually means taking out a mortgage. The ability to take out a mortgage hinges upon your credit score. When you have a bad credit score history, it is difficult for a bank to approve you for a loan. Hence, keep an eye on your credit history to avoid such unusual activity in the future.
While banks may grant you a loan despite your poor credit score history, they may charge you a higher interest rate compared to consumers with good credit scores. As your credit score will be on track or excellent, you’re likely to receive a lower interest rate on your borrowing. Essentially, if your credit scores are listed to be poor you will have to face more hurdles while borrowing. No lender will take an unnecessary risk. When an indicator can alarm a potential lender about your financial responsibility that is what they will believe.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. City Credit Management LLP is not liable for any decision arising out of the use of this information.
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