Importance of Credit Bureau Score
The lenders want to understand the loan repayment track record before they sanction a loan so that they feel confident about a borrower’s repayment capacity. Thus, credit bureau score is one of the key eligibility requirements for loans apart from other factors, such as the applicant’s age, regularity of monthly net income, job / business stability, collateral value etc. Of these factors, the credit score is the most important and influential.
A credit bureau score is a numerical representation of a borrower’s creditworthiness and repayment capacity. Lenders and other financial institutions pass on information about the loan repayment status every 15 days to all the four credit bureaus which study the data provided to analyse the borrower’s track repayment record towards the loan taken by them. Based on their assessment, each credit user is assigned their credit score. A borrower’s credit score varies between 300 and 900 and typically the higher score and closer to 900, the better their chances of getting approved for a loan and availing of it on beneficial terms and conditions. Lenders tend to look into loan applicant’s credit bureau report to analyse whether their repayment behaviour on the loans taken by them and then use that as one of the parameters to decide the loan amount to be sanctioned to them as well as the terms and conditions of the loan.
In India, four credit bureaus are authorized by the RBI to assign credit scores. These are Experian, Equifax, CRIF Highmark and TransUnion CIBIL. Of these four, TransUnion CIBIL was the first to establish in India and therefore, the term credit bureau score is often considered synonymous with CIBIL score in India.
What is a Good Credit Bureau Score?
It does not matter the type of loan you are applying for – secured or unsecured – a Credit Bureau score of 750 or above will help you achieve quick approval, as well as low interest rates. Now that we have a basic of credit score meaning, let us dive into factors that affect a borrower’s credit rating and how to improve and maintain Credit Bureau score.
Factors That Affect a Borrower’s Credit Rating and How to Improve Credit Bureau Score?
Several factors affect Credit Bureau score. Let us look at how each of these factors and how borrowers can improve their Credit Bureau score.
What is the importance of Credit History in determining the credit bureau score?
Step 1: If you want to maintain the credit bureau score, you should make it a point to pay all monthly bills, credit card dues, EMIs etc. on or before the due date. The best way is to have auto-payments like E-NACH, NACH, UPI debit, direct debit, etc. and alerts or reminders to ensure so that you don’t forget the due dates and keep adequate balance in the bank account. In case, you miss an EMI repayment on the due date, it is important to clear the dues, EMI etc. as soon as possible. You should also make it a habit of clearing the entire amount due on the credit card each month and not just the minimum amount due.
How does overall indebtedness affect the credit bureau score?
The way a borrower avails multiple loans, credit cards etc. impacts their credit score.
Step 2: If you who want to improve the credit bureau score, you must avoid multiple loans to keep the credit utilization ratio at an optimum level. It ideal to not use more than 35% of the credit limit available in various forms based on income levels.
How number of new loans affect the credit bureau score?
Another key factor that affects the credit bureau score is the new applications for credit card and fresh loans that you make every year. Borrowers who apply for credit very often are considered to be in constant need of funds, which lenders do not like and neither do credit information bureaus. Therefore, such individuals are assigned a low credit score by credit information bureaus.
Step 3: Borrowers must apply for loans and credit cards only when they need it. Every loan and credit card application generates a hard enquiry and too many hard enquiries ruin a borrower’s credit bureau score.
How to check for Credit Bureau report errors?
Credit bureaus assign credit scores based on the information passed on to them by financial institutions. Though financial institutions try their best, sometimes it gets hard to keep a track of millions of customers. Therefore, at times, banks and lenders may pass on the wrong information to credit bureaus, which in turn, pushes down a borrower’s credit bureau score.
Step 4: All Borrowers must check their credit bureau reports at least once every year which is now free and make sure there are no errors in the report. In case they see any errors, they must report it immediately. Also, as per the amended regulations, all Borrowers will be notified by email and SMS when any lender accesses their credit bureau.
How a good credit mix helps the credit bureau score?
Borrowers who have a healthy mix of different types of loans have a high credit rating as a healthy credit mix convinces lenders and credit bureaus of a borrower’s ability to handle different types of credit.
Step 5: Maintain a healthy mix of both secured and unsecured loans in your loan portfolio without excess dependence of one type of loan.
How to access the credit bureau score for free?
Please use the following links to get the credit bureau score for free.
1) CRIF Highmark: https://www.crifhighmark.com/your-credit-score
2) Equifax: https://www.equifax.co.in/personal
3) Experian: https://www.experian.in/consumer-services
4) TransUnion CIBIL: https://www.cibil.com/freecibilscore
What Does Your Credit Score Tell a Lender About You?
Lenders check a borrower’s credit bureau score primarily to understand the risk involved for them in lending money to the borrower. As mentioned before, a borrower’s credit bureau score primarily shows their attitude towards repayment of loans. It tells a lender whether the borrower will repay the loan on time or not and the likelihood that they will default on loan repayment. Thus, the concept of credit scores helps lenders decide whether to grant a loan to a borrower and if yes, on what terms and conditions.
Summary
If you see yourself applying for a loan such as a home loan in the near future, you must make sure your credit score is good and it will be beneficial if it is above 750. Such a credit score indicates high creditworthiness and repayment capacity. Borrowers who have such a credit score get offered low interest rates and long repayment tenor on their loan. Low-interest rates help keep EMIs affordable and reduces the total cost of borrowing the loan. A long tenor, on the other hand, makes the process of loan repayment easy and stress-free. If your credit bureau score is less than 750, please use the steps mentioned above to improve credit bureau score before beginning the loan application process.
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