Admit It, You Have A Lot To Learn About Your Credit Score
There is a CIBIL credit report and then there is a CIBIL credit score. These two are two different things. Credit report contains information about your loans and repayment history while the credit score is a 3-digit number in range of 300-900, calculated on basis of the information in your credit report.
You may say now, “Oh this, all this is easy stuff”. And you wouldn’t be wrong. Everyone knows them. But bet you didn’t know the following facts about the CIBIL report and Score.
Two inquires at the same time is one too many
Mirnal, a techie in mid-30s, was planning to buy a house. Never to be bothered about boring stuff like CIBIL report, Mirnal had no idea about his eligibility for a home loan. So what did he do? He filled the loan application with 5 different banks, thinking at least one would grant him the loan.
Well, Mirnal did get a loan (his score was 740, which is sufficient for a home loan in India), but by sending 5 applications he brought his score down a few points Surprised at why and how this happened?
Each time you submit a loan application, the lender makes an inquiry, called hard inquiry, by pulling up a copy of your CIBIL report. Submission of multiple loan applications at the same time is understood as ‘credit hungry’ behavior. One hard inquiry can pull back your score by 5 points. When you make multiple loan applications, your score takes a hit because each lender makes an inquiry to evaluate the submitted loan application. The same happened in Mirnal’s case.
“NA” or “NH” is not a bad thing at all
Sachin, a frequent traveler, wanted a travel centric credit card. He applied for one with a renowned bank, but his application was turned down. Reason given was “NA” listed on his score. Not knowing what “NA” stands for but thinking it to be something bad, Sachin didn’t accepted the verdict and didn’t apply with another bank.
And that was a mistake. Sachin would have got the card he wanted had he tried more.
“NA” or “NH” means that your credit history is not old enough to calculate your score or you have not registered any credit activity in the last 24 months or you have all add-on credit cards and no credit exposure.
An “NA” or “NH” score is not seen negatively by lenders. Nevertheless, a few may reject such a credit application. However, many lenders will not have any problem in approving these applications. Sachin would have got the card if he had tried with other lenders.
A settled account is a big blotch on your report
Shruti had taken a loan some time back, but had not repaid anything in the last one year because of very poor financial condition. The bank had been threatening her with legal action for quite some time now and she was naturally worried.
So one day when a bank’s representative approached her with a settlement offer, she happily agreed. She had to pay 50% of the amount owed and in return the bank promised to leave her alone.
Shruti thought she got a deal, but what she didn’t realize that the settled account will continue to haunt her every time she applies for a new loan. A settled account is a partial loss to the lender. If your report has this entry, no lender will lend you a new loan.
In a nutshell, if you plan to take a loan in future, don’t go for settlement. Cut corners or ask for a loan from friends and family but pay the loan in full. That’s the only solution.