Indians Must Know These 5 Things About Credit
Credit score, CIBIL score, and your CIBIL report are indeed things that a modern person engaged in his finances has to be updated about. If you want to get a hold of credit cards, automobile loans, housing loans, or any mortgage, your credit score plays the most important role. THE most important role, did you hear me? The middle class of India has always believed that taking credit from bank or an individual is not healthy for their financial life. If you think the same, it may not be very good for your future. Knowing and managing your credit as we teach here at CreditSmart is a much wiser route.
The internet is abundant with articles on how you can maintain the CIBIL score above 750 so that you can get quick loan from any bank. However, much of this information may confuse an average person. As a result, many people carry on their business in an ordinary manner unaware of the truth that they may be hurting their CIBIL score in the long run. Let us see a few things about credit scores that are important for Indians to be aware of:
Lowering the number of credit cards may hurt your CIBIL score
You must have rightly thought that applying for your credit card may lower your credit score, but you must know that your CIBIL score is also hampered when you lower your number of credit cards. While hard enquiry is held when you apply for the credit card, cancelling them implies that your credit limit is lowered and the utilization of credit is moved up. Since you have to depend on lower number of credit cards, but your expenses remain the same, you end up exhausting more of your credit limits. This negatively affects your credit rating because of higher utilization of credit limit as well as the lost history of surrendered credit cards.
Increase of credit limit
When you send a request to your bank to increase your credit limit, the bank asks the CIBIL to send them your credit report for the assessment of your credit status. It means hard enquiry on your account, which lowers your credit score. Therefore, you must not request for higher credit limit, unless you cannot live without it.
Do not be over conscious about using the credit card
Most people believe that excess usage of credit card may result in evil credit habits and excessive spending. However, it is important to know that the credit bureau cannot rate your credit status if you do not use your credit card at all or make timely repayments. If you do not make any transactions, your credit score inactive on the Bureau, which brings down the score. Therefore, it is better to make small transactions regularly and pay your credit card bills on time.
You can check your own CIBIL score
Your must have heard that checking your own CIBIL score is not good because it brings it down every time it is checked by the banks or anyone else. However, the truth is that you can check your CIBIL report annually as a financial practice. Checking your credit score once a year is a soft enquiry, which does not bring it down. If the issuers of credit cards and lenders check your score, it is a hard enquiry and is recorded in your credit report’s Enquiry Section.
If you apply for loan at various banks simultaneously, they will conduct several hard enquiries demonstrating your credit hungry conduct and hence, affect negatively affect your credit score.
Zero credit does not mean a good CIBIL
As stated above, many of Indians believe that having credit cards is a bad thing as it may develop the habit of surviving on credit in them. That is why; many of us stay away from credit cards and loans and have zero CIBIL score. However, having a zero credit score is equal to having a negative credit score. Since you are not making any transactions, a credit rating bureau cannot assign you any credit score. Such individuals may find it very difficult to procure a loan in times of need. Therefore, it is better to have a credit card and use it responsibly.
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