Consistency is the key to many good things in life like honing a new skill, learning a new language or developing a fit body. Being creditworthy at all times requires similar efforts on a consistent basis. As we all know, creditworthiness is tied down to a good credit score. And a credit score is a numerical representation of past credit behavior and an indication of your creditworthiness to the lenders. The number ranges between 300 and 900. Higher scores indicate higher grades of creditworthiness.
In India, credit scores and reports are issued by four credit bureaus, namely Equifax, CIBIL, Experian and CRIF High Mark.
The first step to being creditworthy is continuous and consistent self-credit assessment. Does the term credit assessment sound too complicated and foreign? Fret not! Continuous credit-assessment is nothing but checking your credit score and credit report regularly. Discover how a simple action can benefit you in more than one ways. We list the top 5 merits of credit assessment. Read on:
1. Know Your Credit Standing
With the advent of many fintech companies, your credit score is no more hidden from you. These companies allow you to check your score as often as you wish. So you are in better control than the previous times, when your application for a credit card/loan was checked for credit scores by the lenders. As you have the power of checking your scores, taking remedial action also becomes easier. There is a plethora of options available. Get a credit health report which gives you actionable recommendations to improve your scores. There are also services which give you the much-needed hand holding in clearing problem accounts and getting an increase on your credit score and making it reflect on the aforementioned credit bureaus.
2. Get Errors in Your Credit Score Rectified
Lenders from whom you borrow are bound to report about repayments and other related activities to the credit bureaus. This also includes reports about you prepaying /closing or settling a credit account. Did you know that the credit bureaus have no means of knowing if the data being reported to them is erroneous? Or, for that matter are in no position to edit it themselves. Therefore, the onus squarely rests on the shoulders of individuals to report these errors and get them rectified. This is possible only when you check your credit score frequently. That is the only way to spot errors, if any and get it rectified. Who would like a lower credit score for no fault of theirs?
3. Keep the Hard Inquiries at Bay
Every time you apply for credit, the lender approaches the credit bureau to check your credit score. These inquiries made by lenders are called as hard inquiries. Every hard inquiry gets accounted for and is reflected in your credit score. Frequent hard inquiries and inquiries that keep getting rejected for want of good credit score reflects you in a bad light. Such a person is perceived as Credit Hungry.
On the other hand, when you check your score it is just considered as a ‘soft inquiry’ and has no bearing on your credit score. So isn’t it better to check your score and then apply for credit? This would be possible only when you check your score frequently.
4. Land Up with Better Rates
Every borrower looks for the lowest possible interest rate on his or her loan. How can you manage to get it? The only way this is possible is when you are a good borrower or, in other words, have a good credit score. Certain banks have already started the practice of offering better interest rates to home loan borrowers with a credit score above 760. It’s only a matter of time before this becomes an industry-wide practice. Knowing your score beforehand gives you the ability to negotiate for better interest rates with your borrower.
5. Avail Pre-approved Offers
Fintech companies not only allow you to check your credit scores for free, but have pre-approved offers for various credit products for different ranges of credit scores because of their tie-ups with various lenders. You can also compare the offers available in the market and pick the best one.
As they say, prevention is better than cure when it comes to health. The same holds good for credit health too. Always make repayments on time and check your credit score periodically, so that you are credit healthy at all times.
(By Ranjit Punja, CEO of CreditMantri.com)