A credit score is a numerical figure between 300 to 900 that is statistically generated using the information in the credit report. Different credit bureaus use different mathematical algorithms to arrive at the credit score but broadly they all use the same parameters to arrive at this number. These are the payment history, amount owed or the credit utilization, age of accounts, type of credit and recent credit activity. Your credit score does not consider factors like your income, employment, age and salary.
This number provides a clear snapshot of your financial health. It gives a quick glimpse of the credit risk to anyone who wishes to extend you credit. A high score implies that you are a creditworthy individual who is likely to make the payments on time. A low score puts a doubt on your future financial behaviour. A score more than 750 usually implies less risk of default and is considered to be a good score to please the lenders and get attractive interest rates. So if you are in need of financing you should check your credit score yourself to see how the lenders will perceive you.
Relationship between credit score and report
While a credit score is just a numerical value the credit report gives far more qualitative and quantitative inputs to the lender. The exhaustive information in the credit report helps him take an informed decision of whether to lend money to the applicant or not. As a borrower it is of paramount importance that you check both the report and score to get a fair idea of how you stand in the eyes of the lender. This helps to avoid any unpleasant surprises during the approval process. If your credit score is low you need to analyse the credit report to find out the reasons such as missed payments, high utilization, mistakes in the credit report or identity theft. A careful analysis of the report will help you to identify areas of improvement. You will be able to pinpoint exactly what credit habits are pulling your score down.
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Good CIBIL score is an outcome of good credit management
What you sow is what you reap. You learnt this idiom in school and saw its application in various aspects of your life. You got good marks if you studied hard. You landed a good job if you prepared well for the interviews. The same “Law of karma” applies to credit management as well. Good credit management habits lead to a good CIBIL score.
Your credit report is a reflection of how you handle your loan and credit card accounts. A good payment behavior builds a sound credit profile and leads to a good credit score. This helps you to easily qualify for loans at low interest rates. Cheaper loans mean that you have more money in your pocket to save and keep for emergencies.
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It is very important to develop good credit habits from the start. From the time you get your first credit card you should know how to shoulder the responsibility of taking a debt. You should be well aware of the interest charges and the importance of making payments on time. It is very common for youngsters to land up in serious debt when they open several credit card accounts without fully understanding how to use them. If you do not want to make that mistake then you should follow some fundamental rules of good credit management that will help you build a good credit history.
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You May Be Able to Get Collection Accounts Off Your Credit Report Sooner Than You Can Think
Any sort of credit/loan delinquency makes your credit report vulnerable to lender’s rigorous collection attempts. The negative history would stay with you for next seven years and you could be denied credit owing to past credit history.
Mostly when lenders fail to collect the payment they turn over to a third party collector and a collection accounts is flagged on your credit report. With red flag in your report you can not advance loan any further.
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While most of us despise legal hassles and hearing, settling collection account could have its own set of benefits for you. By resolving the issues you can successfully get the accounts off your credit report. When your credit account is charged off and sold to the third party it leads to additional stress besides hurting your credit report.
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