Wednesday, 30 May 2018

How Much Time Is Required To Build A Good Credit Score?

Credit Score and Credit Report are two very tricky concepts. With what credit we have taken and the behavior towards that would determine the creditworthiness of any anyone. A 3 digit number ranging from 300-900 decides if we are eligible for any new credit. Credit is either the loan or a credit card. The credit score is also the reason behind what percentage of interest is being offered to us for any particular loan when we borrow it. And majorly it is the reason for the loan approval or rejection. Which also let the lender know if you are a profit for him or a risk. What score is considered a good score? What is a bad score? Who can answer all this?
            Let’s simplify it. There are 4 bureaus in India who offers the credit score. TransUnion CIBIL, Experian, Equifax and CRIF HighMark. Initially, when these bureaus were formed, they all had the different scoring system. But now, they all follow the same rule. All the bureaus give the scorings between 300-900 where 300 being lowest and 900 being highest. Any score from any of these bureaus which is above 750 is considered a good score. The score below that, precisely less than 650 is bad score and is also known as the red zone. To have a loan approval in minutes and with the minimum interest rate, it is necessary to be in the 750+ league. And if suppose you are not in 750+ league and you want to apply for a personal loan, you will have to compromise heavily on the percentage of interest you pay and also would have to apply for Personal Loan for Low CIBIL Score.
            When we talk about credit scores, it's commonly mistaken as CIBIL score. CIBIL was the first bureau in India which introduced the concept of credit score in the year 2000. Ever since people commonly use CIBIL score instead of credit score. While building the score one has to maintain many different criteria. Of the five parameters of the foundation of a score, viz. Payment History, Amount owed, Length of account, New Credits, Credit Mix would determine the score for you. If worked on each parameter correctly, you would never come across the phase where the score would show you the downward graph. When you are new to credits, you are considered a No History customer. Once you start building your credit, it takes first 6 months to reflect your credit for the first time. Work on your credits very vigilantly for the initial 6 months as they would give major ideas to the landers of your behavior. 
    Once the score starts reflecting on your report, you need to understand the CIBIL Score Calculation. The parameters explained in the earlier paragraph would remain same forever from start to end, but then, the difference will be reflected every month. Your score changes every month with your behavior. If you pay on time, owe sufficient amount which you can pay, keep the old accounts open, open new accounts (of course do not overdo on opening new accounts as it will be considered a credit hungry behaviour) and have a good mix of different types of credits there hardly any possibility that your score would feel the descending graph.
            You have to be patient while working on your score. A hurry will lead you nowhere. Also, if you would think of changing things overnight then you are in a big myth. Time is the solution for many things just like in this case. Work patiently with keeping the parameters in sync. Use 30%-35% limit of your credit card. Never overuse it. don’t just pay the minimum amount of your statement, try paying the whole outstanding amounts. Do not go for all the attractive offers you come across. Check whats best and required for you, and only then buy it using the card.
            In summary to this, your first-time score would reflect after 6 months of the first credit you have taken. And post that with effective usage and responsible payments, every month your score would change. If made no errors. You will always have a good score and you would never have to end up paying more amount of interest and going for Personal Loans for Low CIBIL Score.

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