Wednesday, May 20, 2009


Credit scores are becoming increasingly important in today's world. These scores determine whether or not a person gets credit or loan from the lender and at what rate . The use of credit scores is being made at various places and its usage is increasing at exponential rate.As such having a good credit score can do a great deal of good to you. Few of the direct and obvious benefits that you will get because of good credit score are as under:-

1. Loans at lower interest rate - While a person having a bad credit score is denied a loan completely, a person with good credit score will not only get a loan ,but, will get the loan at a much lower rates. This is because banks and financial institutions follow risk-based pricing, while extending credit. Risk based pricing means , the banks charge interest rate as per the perceived risk profile of a customer i.e. charge higher rate of interest to a customer who is perceived risky and lower rate of interest to a person who has good credit history. A higher CIBIL/credit score denotes better credit history and consequently, you will get loans at lower rate of interest.

2. Utilities too will be linked to your credit score - In most of the western countries , credit scores are used by utilities providing company to verify the credit history of the applicant before deciding to extend the facility to them. In India too going forward, your credit scores will be used by mobile company, electricity provider etc before they decide to offer their services to you. So, a good credit score is not only handy while availing credit or loan , but also for availing other services as well. Not only this, the credit rating agencies will going forward also consider your payment of utility bills history also while arriving at your final credit score. So its imperative that we pay off all our utility bills promptly and on time.

3. Better chance at getting a new job- Some of the recruiters in sensitive industries like financial services, BPO etc do a check on the candidates credit score also to find out his/ her credit history. A peek into credit history of a person gives vital information about his financial condition , but, more importantly it also can point out "integrity issues" of the candidate ,if any.Thus having a credit history full of cheque and loan EMI bounces ,loan defaults etc wont be viewed very positively by the prospective recruiter. This is though not done in India currently since credit score is not available to anyone other than banks/FIs as on today. However, this is expected to change with CIBIL working on a proposal to make CIBIL scores available to general public on payment of a fee.
So,what are the ways in which we can improve or maintain a high credit score? I am listing down few of the tips for the same.

Tips to Improve or Maintain a High Credit Score:

1. Make loan payments on time and for the correct amount.

2.Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score.

3.Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible.

4. Be aware of what type of credit you have. Credit from financing companies can negatively affect your score. 5.Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly.

6.Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of accounts, or prescreens), but most are.

Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history.
Hope by following the above mentioned tips , you will have a credit score which will be ,to borrow a line from Onida's devil, "Owner's pride ,neighbour's envy".

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