Your credit score matters in many ways. It is a direct representation of your creditworthiness, which is why if you have a good credit score you can get loans and credit cards at attractive interest rates. You won’t even have to apply at several banks for any of those, as they would be much willing to lend you a loan of any kind.
Since more and more companies have started checking the credit score of the job applicants, you won’t have to worry about your career as well if you have a decent credit or CIBIL score.
Broadly speaking, your credit score and credit report sheds light on three major aspects:
Your credit score shows how healthy you are financially. If you have been paying your loan EMIs and credit card bills on time, and if you don’t have a large outstanding debt which is increasing, then your credit score will be above average. In other words, if you are financially sound then your credit score will be high.
On the other hand, if you have a habit of delaying loan EMIs and have a history of loan defaulting, then your credit score will be low.
Banks and financial institutions refer to credit reports to assess the risk profile of the applicant. Factors like repayment history, annual income, credit utilization are all mentioned in your report and shape your credit score. These factors represent your risk profile and help a lender in making a decision on your loan application.
While your credit score’s primary association is with your financial standing, it represents your personality traits as well:
- Management Skills: You have to be good at management, at least to some extent if you want a good credit score. This is why the individuals who have a high CIBIL rating are generally perceived as reliable.
- Integrity: A poor credit score often stems from an instance of defaulting. While some people default on a loan because they are not able to keep up with the instalments, lose their jobs, etc. some people do so on their own accord. Thus, a high score is also an indicator of integrity.
- Responsibility: If your credit utilization is high then your credit score is likely to be low. The same happens when you apply for loans or new credit cards frequently. These are the signs of credit-hungry behaviour, and a lender can easily get to know about it by looking at your credit score.
So, we have established now that your credit score is really important, which is why you should perform a credit check at least twice a year. If your score is going downhill then it’s best if you act immediately to prevent further damage. But how do you do that?
How to take care of your credit score?
The first thing you need to understand about your credit score is that, it is based on several factors. While different credit bureaus may prioritize these factors differently, they all contribute to your score nonetheless. These factors are:
- Repayment history
- Total outstanding debt
- Length of your credit history
- Forms of credit used in the past
- Credit utilization ratio
Now let’s take a look at them one by one:
Repayment history: For a good CIBIL score it is important that you repay your loan by the due date. Make sure you also pay your credit card bills on time without fail.
Outstanding debt: A high debt is never good for your credit score. If you already have multiple loans under your name and you are also using credit cards, then it’s a good idea to avoid taking any other loans until you have cleared a sufficient amount of debt.
Length of credit history: Usually, the longer is your credit history, the better it is for your credit score.
Forms of credit used: Using different credit forms, such as personal loans, credit cards, mortgage, etc. can increase your score as compared to using only a single type of credit.
Credit Utilization Ratio: You must not use your credit excessively if you want to build a good credit score. Thus, use your credit cards only when you really need to.
Your credit score says a lot more about you than you think. Thus, it’s important you keep an eye on it and take appropriate measures when you see it drop.