Unearth Credit Cards – How does credit reporting work?

If you have recently started using credit cards, you must have come across the term credit score or CIBIL score and wondered, what exactly is it and why is it so important?

There’s a bunch of information you need to be aware of if you’re a credit card user and the most integral part of it is your credit score. How can credit reports make or break your ability to purchase expensive items or get a loan? Let’s look at it one by one.

Credit Score

A credit score determines the types and scales of loans you can get from a bank or any financial institution. It is between the numbers 300-900 and shows the creditworthiness of a customer.

A credit score is an amalgamation of various factors which includes the number of open accounts, the loans, their repayment schedule etc. It shows the lender how efficient the borrower is when it comes to repaying the debt.

What does a Credit Score do?

A good credit score can help you elevate your financial status. If a lender sees that your credit score is decent, that is closer to 900, they will instantly be convinced to give you the money. It’s as simple as that. However, if your credit score is low, that is lower than 600, you will miss out on these perks and may end up struggling to find lenders. So, you must make sure to maintain an excellent credit score

What are Credit Reports?

A credit report is an elaborate document that consists of a person’s credit history which is created by a credit bureau. Such organizations collect the financial details of every individual and lenders use this information to decide if a borrower who has applied for a loan is worth lending money to or not.

In India, there are six important credit reporting agencies which are registered under the Security and Exchange Board of India (SEBI).

  • TransUnion Credit Information Bureau (India) Limited (CIBIL)
  • Equifax
  • Experian
  • ICRA
  • Credit Rating Information Services of India (CRISIL)
  • CRIF High Mark

Here’s some trivia, CIBIL is one of the biggest and most popular credit report bureaus in India and that’s the reason a lot of people refer to credit score as CIBIL score.

So if you use a credit card, your bank or the financial institution shares that information with some of these credit reporting agencies on a regular interval. The bank also shares reports of your loans and bankruptcies if any, with these agencies.

The agencies keep collecting your financial data and the lenders go through it when you need a loan. Your credit report is a testimony of how wisely you spend your money, so it needs to be immaculate if you’re looking forward to getting loans to build your dream life.

To get a great credit report, you must repay your credit card and loan instalments on time. If you’re unable to pay the money in the given period, reach out to your bank and be honest about your condition. There’s a chance the bank will find a way to help you out by giving you more time or restructuring the loan repayment schedule.

If you carelessly choose to ignore the payment schedule and bank’s warnings, there’s an inevitable chance of your credit report being stained with a bad score and your chances of getting any loans in the future come close to zero.

Points to remember for a great credit report

  • Only borrow money that you need and ensure that it should be the amount you are able to pay back.
  • Choose the repayment date wisely. The interest taken on the given amount varies accordingly.
  • Never miss the repayment date consecutively. Repay the borrowed money on time.
  • Be transparent with your lenders.

And you’re good to go. Keep these tips in mind and nothing can come in between you and the amazing life you have always aspired to live.

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