Going Beyond the Jargon – Cibil Scores, Credit Scores and Report

The words ‘credit’, ‘cibil score’, and ‘credit report’ are all a vital part of our daily lives and though they sound scary, they are not. They are important terms that we encounter some way or the other, but what do they actually mean and how do they affect us?

‘Credit’ is not Credit Card

Credit means borrowing money, mainly from a bank or any other financial company, that helps us to buy or obtain something now and pay the cost back later attached with an interest to the borrowing. It means one will have to pay back more than borrowed.

Our lives circle around credit. The main sources are loans, but other small and large purchases paid over installments, all represent credit too. If you want to buy a house or avail business loan, your credit history will be examined to analyze whether you are eligible for the new credit/loan. This is where your CIBIL score and report come in.

What’s in the Report?

Whenever you borrow money, when and how you repay it back, everything is stored. This creates your credit history, on which your credit report is laid out. Your credit report is a file that stores information about the amount you’ve borrowed previously, why you borrowed and whether you paid it back on time.

In more detail, your credit report contains personal information, such as your address, any joint agreements linked with another person; credit information, including how much money you owe, how long you have had the credit for, and whether you have paid on time.

Read More: 5 CREDIT SCORE MYTHS & THE TRUTH BEHIND THEM

The Credit Score

Your credit score, the 3-digit number shows how trustworthy you are for a new loan. The higher the number, you’ll be accepted for a loan, as you will be believed to be a low-risk borrower.

If you have failed to pay back in the past, you’re likely to have a low credit score and so be deemed as a high-risk borrower. If you find yourself in this situation, there are a number of things you can do to try and uplift your score:

a) Make sure you make timely payments. You can set up automatic reminders or withdrawals to ensure you pay before the deadline.

b) Reduce the amount of debt you use. If you are using over 50% of your overall credit limit, it will tag you as ‘credit hungry’.

c) Have as few credit agreements as possible. If you own several credit cards, lenders may question if you’ll be able to pay them all back.

What does this mean for me?

Your credit report and credit score are essential aspects of borrowing. If you want to pay monthly for a car, start a new credit card, avail any loan, you need to have a credit history to assure lenders that their money would be paid back. If you don’t have a credit report or score, or if your score is low, you’re likely to find it difficult to borrow money. 

Summary

To sum up, it is safe to say that a good credit score forms a crucial part of your overall credit health and acts as a catalyst while applying for a personal loan.

If you wish to apply for a loan, know your credit score here.