10 FAQs about Credit Scores That You Should Know
If you want to get a Personal Loan or any other loan for that matter, you need to be eligible for one. Being eligible for a loan means understanding whether you are creditworthy or not.
1) What is a credit score?
Your credit score is a number that gives an outline of your credit information on a credit report. It stands for the creditworthiness of an individual and shows the lender how likely you are to repay your debts. Your credit score determines whether you are approved or denied credit. This three-digit number ranges from 300 to 900 points. If you have no credit score, it is difficult to obtain a loan.
2) Is my credit score vital if I want to get my loan sanctioned?
Your credit score plays a vital role in the loan application process. When you fill out an application form and give it to the lender, the lender examines your credit score first followed by your report. If you possess a low score, the lender can reject your application. Or, the lender may extend the loan to you but at a high-interest rate. If the score is high, the lender checks whether you are creditworthy. All in all, a high score implies that the probability of securing a loan increases.
3) Are CIBIL score and credit score the same thing?
While a credit score is a numeric expression that gives the lender an idea about the financial credibility of a person, there are credit institutions (bureaus) that verify your credit score. Credit Information Bureau (India) Limited or CIBIL is the most popular credit bureau in India that offers credit scores to individuals.
4) How does credit score get affected negatively?
Some of the reasons that have an unfavorable effect on your credit score include irregular loan repayment, too many credit inquiries by financial institutions and banks, Credit Card defaults, making payments after the due date, cheque bounces, excessive unsecured payment such as multiple Personal Loans, high use of the sanctioned credit limit and many rejections of applications for unsecured loans.
5) How long does negative and adverse information stay on my credit report?
Generally speaking, any unfavorable information on your credit report does not stay on after seven years. In cases when you are affected by bankruptcy, it falls off after ten years.
6) Does applying for a loan lower my credit score?
Loan applications influence your credit considerably. It is because around 10% of your credit score originates from the credit-based applications you make. Each time you submit a loan application, the lender will place that inquiry onto your credit report. It showcases that a business examined your credit report. Numerous inquiries that occur at the same time give an impression that you frantically require a loan which is not a favorable sign. Hence, it can drive down your credit score.
7) How do you build credit?
You need to pay attention to five essential factors namely payment history, average credit age, credit utilisation, inquiries and account mix. See that you make your payments on time and utilise credit cautiously. Building your credit can take many years but being patient when doing so comes with excellent outcomes.
8) Will checking my own credit report hurt my credit scores?
You won’t hurt your credit scores by checking your own credit report. Credit inquiries are usually categorised into hard and soft inquiries. Examining your own credit report falls under a soft inquiry. These kinds of inquiries do not hurt your credit score in any way. In fact, it is imperative to review your credit report at least once a year. It helps you recognise any mistake and take measures to rectify them.
9) What is incorporated in a credit report?
Your credit report comes with your name and address, the amount you presently owe to lenders, if you are on the electoral roll at your existing address, any missed or late payments on loans and Credit Cards, bankruptcy/country court judgments/repossessions as well as individual voluntary arrangements. It also includes joint financial products as well as linked accounts such as a mortgage between partners.
10) What if my score is ‘NA’ or ‘NH’?
Having a score of ‘NA’ or ‘NH’ is not something you should worry about. It is not bad as it can imply that you do not have any credit activity in a few years, you do not possess any credit history, or you have an all add-on Credit Card and minimal credit exposure. While this in itself does not have any negative connotation, some lenders do not offer loans to people who possess scores of ‘NA’ or ‘NH.’
Understanding these FAQs help you understand the concepts that revolve around credit scores well. Here’s hoping most of your questions have been answered, and the process that enables you to Get Instant Personal Loans Online or through a more traditional approach is a little bit easier.
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