Have you ever considered taking a loan to buy a new house, or to purchase that dream car of yours? Maybe even start that business of yours?
If you’re not sure what to do, we have all the answers covered.
If you want to borrow or take a loan from the bank or a financial institution, make sure you have a good credit score.
What Is a Credit Score?
Your credit score is an extremely important part of your financial life. It’s a number between 300 and 850 that is calculated based on several factors, including your payment history, credit inquiries, credit usage, length of credit history, and any new credit you have.1
Think of your credit score as a grade you receive in school. Lenders and other creditors report your information to the three credit bureaus, which affects your score. They also base their decision to extend you credit on this number, which spells out whether or not you get that mortgage or loan. It’s also used by others, such as employers, insurance companies, and landlords. The higher your score, the more likely you are to be approved. But a lower score means that you may be denied or, if approved, have to pay more in interest.
This is why monitoring your credit score is so important. Knowing your score means you’ll be better prepared when it comes to applying for credit and it also helps keep you in check. But how do you monitor your score? This article gives you the lowdown on your score as well as some of the many sources that provide you with your rating for free.
What’s a credit score, you ask!
A credit score is a number used to denote the merit of credit of an individual.
How does one check credit score?
You have to go through a CIBIL check.
Firstly, let’s get some insight as to what is CIBIL (Credit Information Bureau (India) Limited. CIBIL is a leading credit rating agency in India that reflects your creditworthiness. Due to CIBIL, one can easily say that India is a financially literate nation. It has made the financial markets more transparent, reliable and structured to spread awareness among financial institutions and business to manage risks and control bad loans.
A CIBIL check is performed online. We shall look at the step by step guide of how to check CIBIL score a little later.
Banks and financial institutions check CIBIL score formerly before granting any loan.
The CIBIL check generates a credit score, which is a 3-digit number usually ranging between 300 and 900. A score below 300 is poor whereas the score of 900 is ideally the best.
Every month, various banks and NBFC’s furnish their reports to check CIBIL score for multiple individuals and businesses. This, in turn, assists them to choose the appropriate customers and monitor the repayment patterns of existing customers.
When the banks and financial institutions check credit score, it would be adequate to keep in mind that the score should be above 700.
Now, let’s get to the central aspect of -check my CIBIL score. Surely, by now you have understood what a credit score is and what CIBIL is.
Why is a credit score important?
Before we explore this section answer this simple question – “Will you lend money to a complete stranger?” Most of you will be nodding your head saying “No”. The only way you will think of owing money to a stranger if you know the person or one you know vouches for them.
To put it in layman’s terms, banks were having the same problem in lending money because of the lack of parameters to make a lending decision. This lack of data also explains why loans were predominantly given to existing account holders or would take a lot of time to approve loans for new customers as it will take a lot of time to verify the given documents.
A person’s credit score is that friend vouching for another person. The credit bureaus have all the information on you based on your credit history and provide a background about a potential borrower to the lender (Bank or NBFC). So, high credit score indicates that you have managed your credit better and this increases the chance of your loan or credit card approved and get better offers in the future.
Who calculates the credit score in India?
In India the credit score of individuals is the domain of 4 credit bureaus – Equifax, CIBIL™, Experian™ and CRIF High Mark™. From lenders they collect the data of individuals who have taken any of credit compiling them in the form of a credit report based on which they calculate the credit score using their own proprietary algorithm.
Credit scores used to be an alien topic in India but not anymore. A survey found that 3 out of 4 Indians check do a credit score check credit score twice a year. Many Indians check credit score online to improve it while others check it to get a credit card or loan.
Even though many do the free credit score check to improve it, 3 out of 6 Indians were shocked to know that credit score is checked by lenders before approval of loan and that some mobile service providers check credit score before finalizing post-paid credit limit. This indicates that there is enough scope to educate Indians about credit score and its importance.
Another factor is that Indians with income higher than Rs.5 lakhs check their credit score at least twice in a year compared to people with lower income.
How and where can you check your free credit score?
Checking your credit score frequently helps you take smart financial decisions. Based on the score, you can approach a bank to apply for a loan or credit card and bargain for better terms. Even a small reduction in the interest rate of big-ticket loans can save you a lot of money in the long run. You may wonder how and where you can do the free credit score check. Following are the ways to check your credit score at various platforms.
Credit Bureaus: As per the RBI mandate, each credit bureau should give your credit report and score for free once a year. You can check it online at their official website or by mailing them.
Third-Party Financial Portals: Third party financial sites provide credit score for free round the year. You can check it anytime from anywhere and it’s completely free. Checking your credit score does not hurt it, and you can check it for any number of times.
Banks: These days some of the banks also provide credit score. Some lenders charge a fee while some provide it for free.
To check your credit score online for free, you may need to enter the details of your Name, Date of Birth, PAN, employment, etc. After submitting the details, your credit score and report will be fetched from the credit bureau for your view. It just takes minimum of 2 minutes to check your credit score for free.
Information Needed to Check Your Credit Score
Checking your credit score for free is easy and it will require certain information to fetch your score. Following are the information that are generally needed to check your credit score at third-party financial websites.
Name: The name should be your original name which is recorded in your PAN and other official copies such as Voter ID, Passport, Birth Certificate, etc.
Date of Birth: The date of birth is mandatory to check your free credit score. This should match with the birth detail on your PAN and other official records.
PAN: This is the most important proof that is required to fetch your credit score from the bureau. You need to just enter your Permanent Account Number to get it.
Gender: You may have to mention which gender you belong.
Mobile Number: You need to mention your mobile in order to verify your profile. An OTP will be sent to your mobile for verification.
Employment Details: Information such as your employer, monthly salary and type of employment may be required to get your credit score.
PIN Code: You need to enter the PIN code of the locality where you stay permanently.