A survey conducted by CreditSudhaar across eight cities in the year 2016, threw up some startling information, some of which we share here.
Only 47% of the surveyed were aware about credit scores and credit bureaus which indicates that the majority which amounts 53% were unaware of the same.
The awareness though low was a considerable improvement over 2013 when it was just 14%.
Only 15% of the respondents knew their credit score.
11% of the sample size had ever obtained their credit report.
However 70% knew that a good credit score could help them in getting a loan.
41% of the surveyed knew that a good score could help in reducing the cost of a loan.
So as is evident from the results of the survey that though awareness about credit scores is on the rise and a large chunk do know about their importance for getting a loan, still there is a huge knowledge gap when it comes to the actual importance of a CIBIL score for an individual and how it is calculated.
Free Scores By Credit Bureaus: A Step in the Right Direction:
As per a directive issued by RBI in January 2017, all credit rating agencies have to provide a free credit report to anyone who asks for it; this is to be provided annually. To clarify, the agencies are not obligated to do so on their own and will provide the free report only when an individual asks for it. There are four credit bureaus in India so you can get four free credit reports in a year which means you can get one report quarterly.
Earlier all bureaus required an individual to pay a fixed amount (which varied from one agency to another) if they wished to access their credit report. This could have acted as a deterrent but with reports now available without any cost, more people are likely to access it. This will not only raise awareness about what is included in the report but will also prompt them to take action in case the score is low.
Why is Credit Score Awareness Important?
While 70% of those surveyed knew that a good score was required for a loan only 41% knew that a healthy score could actually help save them save loan cost. The most obvious reason for being credit healthy is that it helps in getting a loan sanctioned. A good score can give you bargaining power and also more choice so you can approach a lender who offers loan at good rates and can also seek concession in the offered rates. A higher score is an indicator of low risk and the lender may be willing to offer a loan at a lower rate.
Credit reports also reveal comprehensive information about one’s debt position. So there may be times when you may be surprised by what your reports reveal. Neeta had an Axis Bank personal loan which she had paid fully about a year back. However, when she checked her credit report she could still see the loan listed in the accounts section. This was due to the fact that she had not taken a NOC from the bank after paying all the dues.
Credit history of an individual may also be sought in some instances when he/she applies for a job; this is specially so for jobs in the financial sector or for candidates who apply for higher management positions. Credit reports also aid in financial planning and are an indicator one’s financial health. To sum it up credit scores are important because:
A healthy score aids in getting a loan approved.
Credit rating can influence the loan interests too.
They are an indicator of one’s financial health and creditworthiness.
May be used by some organizations for selecting the right candidate for a job.
A tool for effective financial planning.
As economy becomes more digitized and credit driven, awareness about credit scores, their importance and what contributes to credit score calculation also assumes more significance. Thus it is imperative that all stake holders strive for better credit awareness amongst Indians.