At Avanse we believe in equipping our customers with the right information. An education loan is probably the first step that the student takes on his road to financial independence; hence we believe that a good understanding of one’s credit is important.
A credit history is a collection of all the pieces of financial information that relate to your life. It contains information on how long you have been maintaining your accounts, the limits associated with it and how good your payment history has been.
This is vital to future and current creditors as this shows the merit of the credit they advance you i.e. the probability that you will repay. Because you have handled your credit well in the past, is proof enough of your credit behaviour in the future. The credit report gives a snapshot of your financial life. This arms financial institutions with the information they need to decide whether they should lend or extend credit to you or not. Learning how to establish and maintain good credit will help you achieve your financial goals. Here is what you need to know:
A credit score is a numerical Score that summarizes your credit history and credit risk for lenders. If you are applying for any kind of a loan, be it an education loan, credit card or even a home loan, the bank or lender will check your credit report and credit score to understand your risk profile (i.e. how likely you are to pay back the loan) and decide whether they want to issue the loan to you. In India, presently there are four credit bureaus that are tracking millions of customers and their credit use:
If you have ever taken a loan (personal, auto, education, home etc.), or if you have a credit card, or if you have bought products on EMI, you should have a credit history and a credit score.
A credit score, in this case a CIBIL score, is a 3 digit number based on a snapshot of your credit report that helps a lender determine your ability to pay back debt (your score = your credit risk). This score ranges from 300 (worst) to 900 (best). This score plays an instrumental role in loan approval. The closer your score is to 900, the better are the chances for your loan approval.
Your credit report contains four important areas of information.
CIBIL scores are one of the most widely used credit scores and are based on the following factors:
Introduction of credit score and credit history tracking will result in several benefits for you as a consumer-
Only you and the financial institutions that you authorize (usually when you sign an application) for credit processing can view your credit report. However in some cases, some banks check your report prior to giving you a pre-approved loan or credit offer.
If you have never checked your credit report and score, you should do it now for two main reasons. First, checking your report will give you an idea about your current credit profile and what can be done to improve your score. Second, you can identify any issues in your report such as wrong information, any fraudulent activities such as accounts that you may not have opened etc. You can dispute any wrong information in your report with the bureau and get it corrected to improve your score. If you have accessed your credit report at least once earlier, it is recommended that you access it annually to keep track of your credit score movement. Moreover, if you are trying to improve your credit score before a big loan application, it may make sense to start tracking it on a quarterly basis.
No. Credit history along with the specific lender’s loan underwriting policies determines whether you get approved for a credit card or loan. For example, a credit score of 750 may be good enough for one financial institution to issue a loan, provided you meet their other requirements. On the other hand, another service provider (who may be more risk averse) may not issue a loan to you unless you have a score of 800+. If more than 50% of your net income is utilized to pay off existing loans and EMIs, you may not get a loan approved even if you have a very good score, as the additional burden of debt on you may mean your inability to pay loans on time. In other words, your Debt Servicing Ratio (Monthly Loan and EMIs payment / Monthly Net Income) should be less than 50% for you to be approved for a new loan. Credit score and credit report nevertheless plays an instrumental role in any credit decision by lenders.
CREDIT REPORTs have been widely used by loan providers to evaluate loan applications for over 5 years. However, it is only recently that people have begun to realize, how crucial it is to be aware of and maintain a good credit history. Understanding the CIBIL credit report helps you identify the right time in your financial life cycle to apply for a loan and increase the chances of a loan approval. Listed below are the most important attributes looked at by a Loan provider while evaluating your credit application.
Each time you apply for a credit in the form of a loan or a credit card, the creditor may obtain a copy of your history. This action is called as an enquiry and it is recorded in your credit history. Too many enquiries within a short period may have a negative impact on your score and credit history. Lenders may assume you are trying to get as much credit as possible and may identify it as if your spending is out of control. (though it may not be the case) Rest assured, when you request a copy of your credit report (which is recommended periodically) it may not negatively affect your score.
It can impact in both ways. If you have taken an education or student loan and are making timely payments of the EMIs, it will help you in building credit history and a good CIBIL score. However, if you are late in paying the EMI and/or have defaulted, it will have a negative impact on your CIBIL score and history. Therefore, if for some reasons you are unable to pay your education loan, please work with the bank or your lender to get an extension on the loan or change of terms of the loan. It’s imperative that you are in good standing on your education loan, as it will impact your prospects of future loans such as a car loan or a home loan.
All your payment transactions and history are being reported to the credit bureau by the loan provider. Therefore, if you are not making payments on time, it will reflect in your credit report and negatively impact your CIBIL credit score. If you default on any of your secured or unsecured loans, it may reduce the possibility of you getting a loan in future. So please ensure that you pay all your bills on time. If you are not able to meet your EMI obligations, please work with the lender to make some alternative arrangements, if possible.
It may. If you are financially dependent on your parents/relatives or they are acting as guarantors of your loans, any negative credit history pertaining to them may reduce your chance of getting a loan.
The answer is ‘Yes’. Several companies from Finance, IT and other sectors have started to check the candidate’s credit score and credit report as part of the background check process. This phenomenon is more common at senior level hiring. Quite a few companies (mostly multinationals) will run a worldwide credit check (e.g. USA, Canada’s FICO) on you. If your credit report or credit score show major issues in terms of your debt repayment history, you may not be selected for the job you have applied for. If the employer is not able to access your report directly, they will ask you to submit this report along with rest of the documents required by the company.
Your credit history, other than your income, is the single most important tool used by a Loan provider to evaluate your application for any loan or credit card application. Naturally, it’s important that you understand your Credit Information Report (CREDIT REPORT) and what it takes to maintain a credit history, so that is viewed favourably by Loan providers. Good credit history can be maintained by following these 7 simple guides:
Though these general rules are important to keep in mind, each loan provider has its own policies to sanction a loan to an applicant. It is important to note that your score will begin to rise as you improve your credit history