Awareness about credit score and its importance is still restricted in India. Though people are beginning to get conscious about the relevance of credit rating, there is still a long way to go. As per a survey conducted almost 70% of the sample surveyed were not aware about credit rating and 80% did not what are consequences of a low CIBIL score. Thus if you were to ask somebody what can a low credit score hamper, few might know that it can reduce your chances of getting a loan but very rarely will anybody be aware of the role credit score plays when trying to get a job. So read on to find out more about what are the things that a low score could hamper.
Why is Credit Rating Important?
Credit rating is a statistical tool that lets one assess the credit worthiness and trustworthiness of an individual. Obviously any human quality cannot be measured in numbers or scores so this is not something that can be said to be cast on stone. However the basis of the CIBIL Rating model is that based on the past behavior of an individual on certain parameters we can estimate what his/her future behavior is likely to be based on the assumption that people are likely to act in the same way over a period of time. So how does it measure creditworthiness and trustworthiness? If a person has been responsible in repaying his/her dues on time, is not overtly dependant on credit, does not show credit hungry behavior and so on then that person displays integrity, good planning and can be trusted.
Again as we said it is not something that is fool proof, a person who has an impeccable credit history may default in the future while somebody with high integrity may have defaulted due to a genuine reason that may be beyond his/her control. Thus the rating can only give an indication for the future behavior and allow the lender or the employer to take a calculated risk.
Low Credit Score Could Hamper the Following:
We discussed above the importance of a credit score; but what happens when you have a low credit score. Do certain things become beyond your reach, does it impact your life anyway negatively? Here are a few things that a low score can hamper.
Getting a Loan:
This is the most obvious result of poor credit rating; a low cibil score means that lenders are less likely to trust you with fresh credit. A look at your report will reveal that you have not been a responsible borrower in the past, or that you are overleveraged or you are credit hungry and so on. This means that they will not want to take the risk of default by accepting your loan application. Thus you might have to kiss your dream of a new car or a new home goodbye.
Buying Consumer Durables Online:
This is something that has been initiated recently but is hardly surprising. The growing demand for online shopping led to e-tailers offering lucrative options online, one of them being the option to buy on installments. This puts these e-commerce players at default risk like any other lender. Thus they have also tied up with rating agencies to access the credit rating of the buyer with his/her consent. This makes the process quicker and more efficient for both buyer and seller. The seller is less at risk and for the consumer the likelihood of getting his application rejected in case of a good credit history is unlikely. So if you have a low score you could find buying a consumer durable on installments online difficult.
Getting a New Job:
This is the least obvious yet the most potentially harmful result of a low score. This is also a new but a fast catching up trend in India. Employers are seeking a credit check of the potential employees just like they would seek health and background check. Sometime back SBI took the lead in this direction when they stated in their recruitment advertisement that looking for people with poor credit track records should refrain from applying for the job. By looking at the CIR the employer can be sure that they hire only trustworthy people who are financially stable and responsible. A debt ridden employee could be a ticking time bomb for a company as he could get into legal trouble.
The stakes just got higher; maintaining a good credit score is important for reasons that go beyond just getting a loan or a credit card; so stay credit healthy!