Credit History

Every time you avail of any credit or loan, a record of your transactions is maintained. This includes the types of loans that you have availed, the number of applications made, the repayment on your loans and other details—all this information when consolidated, makes the credit history of an individual.

It is essentially a record of how you have managed credit in your past. Banks carry out a thorough credit history check to ensure that the customer that they are lending to is reliable. If you have a good credit history, it makes you favourable for credit since you are a low-risk customer.

Carrying out a CIBIL score check regularly will tell you if you have a good credit history or not. It indicates that you have honoured any credit that you have availed and have maintained good financial health.

Here are the key indicators of a good CIBIL score history:

• CIBIL Score: Based on the repayments made and your overall credit maintenance, credit rating agencies calculate your credit score. Most banks refer to the Credit Bureau of India or CIBIL to get the credit score of an individual. The maximum CIBIL score that an individual can have is 850. However, this number is hard to attain. A credit score above 650 is usually an indicator of good credit history.
• Credit utilization: Good credit history means that the individual has used the available credit wisely. There is no overuse or spending beyond a given credit limit.
• Debt load: If your debt load is balanced well between secured and unsecured loans, it is an indicator of good CIBIL Score history. The repayments made towards the loans that you have availed of should be justified by your income for a good credit history.
• Repayment history: Having a good credit history means that all your repayments have been made on time or before the given due date.

If your personal or commercial CIBIL report indicates a longer credit history, you are considered a desirable candidate to avail credit. Of course, you must fulfil the parameters mentioned above. The longer the credit history, the better the experience of the individual with respect to managing and maintaining their credit score.

If you carry out a CIBIL history check, the same parameters can be used to determine whether you have a good or bad credit history:

• CIBIL score: If you have a credit score below 650, then it shows that you have a poor credit history. Of course, there are several options for you to improve your CIBIL score and thereby increase your creditworthiness.
• Credit utilization: Individuals who are in the habit of using up their credit limit fully on a regular basis are viewed as lacking financial discipline. It is also an indication of financial distress, which reflects poorly in your credit history.
• Debt load: If you have too many loans such that your debt-to-income ratio is disproportionate, then it shows that you probably do not have the repayment capacity for the loan. It also shows that you have made frequent enquiries to avail of credit. This is also detrimental to your credit history.

There are several options available for you to improve your credit score over time. However, it is better to prevent it from slipping below a point. This can be done by checking your PAN card CIBIL score on a regular basis and maintaining it at a desirable level. You can also seek the assistance of a financial advisor if you are unable to keep track of your repayments and finances.

If you have never availed of any credit, then it means that you have no credit history. This does not mean that your credit score is zero. It means that the credit rating agencies do not have enough information about your financial history. As a result, CIBIL score calculation is not possible.

In order to build your CIBIL score history, there are some credit facilities that you can avail of. Making regular repayments is the best way to build your credit history. When you start out to build your credit history, you do not start with a very good CIBIL score. However, it is easy for you to build it along the way.

Every lender carries out a thorough credit history check to determine if the individual is creditworthy. Creditworthiness means that the individual is reliable and has the means to make regular repayments towards a loan.

Your CIBIL score history is extremely important because it gives the lender valuable information about your financial health. The lender can determine if:

• You have been regular in repaying loans and credit card bills.
• You use the credit limit according to your requirements, or if you overspend.
• You have the income to sustain your regular expenses along with an additional EMI.
• You have enough experience managing your credit. This is determined by the length of your credit history.
• Any previous loan application has been rejected.

These factors influence the following:

• The approval or rejection of a loan or credit card application.
• The interest rate you avail of on the credit facility.
• The margin that you will have to pay.
• The security that you will have to provide against the loan.
• The repayment terms.
• The interest rate for any loan or credit card.
• The quantum of loan or the credit limit that can be extended to you.

The better your CIBIL report, the better your chances of getting approval and the best loan terms for easy repayment.

If you do not have any credit history, you can build it using different methods. The first step is, of course, to apply for credit. Now, without a credit history, there are two products that allow you to do that:

• Secured credit cards: These cards need to be secured with cash. The limit that you get is the same as the cash that you deposit.
• Credit builder loans: These loans are released only after all the repayments have been made. The idea is to get a lump sum at the end of the loan tenure.

Once you have availed of these products, make sure that your repayments are regular. With secured credit cards, it is advised that you make regular but limited transactions and repay them before the due date. Then, carry out a regular CIBIL score check to see how it is being affected by your transactions.

Your CIBIL score history can be maintained to ensure that you do not run into any issues when you wish to avail any credit in the future. Here are some simple measures that you can take to manage a good credit history:

• Maintain repayment timelines: Making payments towards the loan or credit card before or on the due date is essential. When it comes to credit cards, it is also necessary to avoid revolving credit. Make full repayments instead of only paying the minimum amount due.
• Do not overuse credit: Maxing out your credit card each month, making cash withdrawals on your card, and other habits can be detrimental to your credit history. Have a budget for your credit card usage each month. Use only the amount that you are certain you can repay on time.
• Avoid too many credit applications: Too many credit applications in a short span of time is considered financially irresponsible behaviour. It also means that you are unsure of the application being accepted. Instead, it is a good idea for you to understand the eligibility criteria well and apply only for loans that you are sure will be approved.
• Have a mix of secured and unsecured loans: Having only unsecured loans is a sign of financial distress. It is better for you to have both secured and unsecured loans to show that your credit usage is genuine. It is also a good idea to acquire loans meant for asset development.
• Keep a tab on your credit history: Credit monitoring is very important for you to ensure that there are no errors in your credit report. Regular CIBIL history check allows you to correct these errors in time and restore your credit score.

In order to process your credit card application, lenders require a minimum CIBIL score. There are other reasons why a credit history is important for a credit card application:

• The limit allowed is higher with a good credit history.
• You get a lower rate of interest with a higher CIBIL score.
• You can apply for premium credit cards with more rewards and benefits.

With most banks and lending institutions, the minimum credit score for a personal loan is 650-700. This makes you a low-risk candidate for the loan. Remember, most personal loans are unsecured. Therefore, the credit score is one of the most important parameters, besides your income to get approval on the application. Having a good credit score gives you the following benefits:

• The quantum of finance or the maximum loan amount that you get, is higher.
• You can enjoy a lower rate of interest.
• The repayment terms are more lenient.
• You can avail of a loan with zero security.
• You are eligible for pre-approved or instant loans to help you in case of a financial emergency.

Just like a personal loan, the minimum credit score for a home loan is 650-700. Since this is a secured loan, other factors like the value of the property play an important role in determining the terms of your loan. With a good credit score, you get the following benefits:

• Higher quantum of finance or loan amount extended to you.
• Lower rate of interest.
• Better repayment terms.
• Lower margin payable towards the loan.