Thursday, 24 September 2015

How important is your credit history for your credit score?

Planning to purchase a new house or a car? Or apply for a credit card to make shopping easier? Well, let’s take a look at what you need to keep in mind before you apply for one, or both!

The primary documentation that a financial institution or lender looks at is your credit information report, or CIR. A credit score is an integral part of your CIR. Based on your past credit history, a credit information company, or credit bureau will assign a score of 300 to 900. Higher the score, the better are your chances of an application being approved.

Let’s now take a look at the factors that determine your credit score. Primarily, it is your past credit history that affects your score. For example, if you have availed of a home loan in the past, and made regular EMI payments (in full and on time), your credit score will get a positive boost. On the other hand, delayed payments, or skipping dues on a loan or credit card account can deeply impact your score negatively. This is because the score helps a lender understand a customer’s creditworthiness, and whether offering a credit facility to the said customer is worth the risk.

Assume an individual has availed of a loan in the past, and owing to a dispute, the amount has been written-off by the lender. Keep in mind that this once reported to the bureau also negatively impacts your score. As a customer, do ensure that your repayment track record is clean!

How can I improve my credit score?
To begin with, make sure any loan or card outstanding are made in full and in a timely manner.
Call for your credit report. If you think any entry therein is incorrect, it is possible to raise a request to have the same corrected. If indeed erroneous, once the changes are done, you will see an increase in your credit score.
You also have the option to avail of credit counselling, wherein professionals would guide you with tips and information to improve your credit score.
We now know the importance of having a good credit history, and the direct impact it has on the credit score. While it is not impossible to get a loan with a low score, it is always prudent to ensure that your score is – and remains – high. This will mean that if and when you want to apply for credit, your application process is smoother and quicker than otherwise.

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