What is credit score? What is the likely range of a credit score, which credit score is considered to be the best one? Also, how can we build a good credit score?
So, a credit score is a three-digit number between 300 and 900 that tells institutions how credit-worthy you are. The lower your number is, the worse off the credit score is and the higher it is, the better it is. It is basically a number that is issued by an institute like, say CIBIL, which gathers information about you. All the banking, financial history, transactions that you are doing, this information is collated and a number is assigned to you and that is a number between 300 and 900.
So, all the banking transactions that you are doing will be taken into consideration when they are assessing what your credit score should be.
So, how does one build it? It starts with a basic bank account. If you have never taken a credit card or a loan, it starts off with the transactions that you are doing, the checks that you are issuing. Whether you are bouncing off checks or writing more payments than you have in your account. If you have Rs 5,000 and if you issue a check for 5,001 it will get rejected. If that is happening, then you will have a lower score. This is all the information that is going.
Any of your SIPs, because I do know a lot of people start off investments immediately as soon as they start earning. So, make sure that all of your transactions are being honoured and not getting rejected.
How can one go about it if somebody does not know that a credit score is being maintained? How should one go about checking the credit score? Also there are reports saying that you should not check your CIBIL score on a regular basis. How correct is that and what steps should one take to take care of that?
People do want to know what their score is. Because if you do not know, then how would you even work on improving it? So, you can check on the CIBIL website and check your score. You can also check your score on websites like BankBazaar, etc, for free. But be aware that you are sharing your information with these websites. So, they may push for loans or cards or policies or whatever but these are places that you can check your history without it actually impacting your score.
So, there are two things to remember when you are inquiring. There is a soft inquiry that you yourself are doing. So, when you are checking on whether it is the CIBIL website or a GPAY website, for example, that also lets you check your CIBIL score or a site like a BankBazaar. You can check on your own by putting some basic information, that is called a soft inquiry because you are not really applying for a loan or anything versus if you are applying for a credit card or a loan, they will check your credit score which means that is a hard inquiry. So, every time or multiple times if you are doing hard inquiry, for example, if you are applying for too many loans or too many cards, then too many people are checking your score, your hard inquiry is happening and that is how your credit score can be negatively impacted. So, ideally get one at a time and not multiple cards so that will not impact your credit score. Checking multiple times usually does not impact the score because it is a soft inquiry.
You were just highlighting that multiple people checking your CIBIL score may impact your rating but the point being that if somebody is taking multiple loans at a time, does that impact your CIBIL score too? And if he is already insuring regular payments to the same, will there be any impact on the CIBIL score and any further loans that the person is in need of?
If you are applying for multiple loans, it does impact. Also what impacts is not just your payment history, even if you are honouring everything but if you are applying for huge amounts of loans, if you are overextending yourself, it could definitely negatively impact your credit score.
What will be the top five key takeaways from you in terms of how to maintain a good CIBIL score?
One, when you are checking for your CIBIL score, check with the CIBIL website, not on any other websites, which may push products to you. That is my number one point that I would highlight, even if it is for free, it is absolutely fine. If you have to pay and take it directly from CIBIL and not take it for free because they do then push products.
Second, do not apply for multiple loans at the same time. Take one at a time, make sure that you are building a bit of a history and then apply for the next one if you can. Do not overextend yourself on especially credit cards because it is really easy, and they keep calling you and asking you to increase your limit. Do not do that.
One, of course, you may be tempted to spend more but the second issue is that if you are then going to take another loan, it seems like you are already overextending yourself, when in reality, you may not be. So that is, my third takeaway.
Fourth is definitely do not skip your EMIs or your credit card payments. Ideally, pay the full amount on your credit card bill. Do not look at the minimum amount that is due. So look at the entire amount that you can pay off.
The fifth point is do not worry too much about this credit score all the time and keep checking week on week. I think that will only stress you out. Once in three months, if you are checking your credit score, I think that is good enough.
If somebody is taking a joint loan and two individuals have different CIBIL scores, then how does that impact the loan that both of these individuals can take and how does CIBIL matter in this particular case?
If there is a joint loan, definitely CIBIL scores matter for both of these individuals. But if there is one with a better score that will definitely have a better impact than the one that is not having a good score. So anything above 750 is a great score. So anything above 650 is still a good score but above 750 is a fantastic score. So if you are applying for a loan there, ease of access, ease of availability of loan is there.
If your rate of interest is competitive you can actually negotiate on interest rates. So you do have that advantage when you, even if you’re a joint owner there, even if you are a joint applicant, that advantage is still there. It could pull you down a little bit of your negative, it could impact your negotiation negatively a little bit but since there is a high score person there, it does impact positively.