Most of us are quite familiar with the concept of loans and credit cards. These are definitely the most popular financial instruments that one can rely on for a healthy balance between income and expenses. However, there is one thing that has potential to influence the approval of loans and credits and that is civil score. Generally, the first factor that the lenders check is the credit standing of a civil consumer and most of the times, the approval relies on this one factor whether the applicant is creditworthy.
A civil score is a three-digit number ranging from 300 to 900, which measures individual’s credit standing and their repayment ability of the borrowed sum. A score closer to 900 determines that a borrower is financially responsible and carries less risk to default on repayments. On the contrary, lenders think twice to approve applications with lower scores and if approved, certain terms and conditions are attached to it.
In India, there are basically four credit bureaus authorized to calculate civil scores for individuals and companies, namely TransUnion CIBIL, Equifax, Experian, and CRIF Highmark. Though, these bureaus have different criteria to compute the scores, but the output is almost similar with a minor difference of 5 to 10 points.
Basically, whenever a person borrows from the banks or financial institutions, the same is reported to the credit bureaus. Considering the details provided by the respective lenders, the credit bureaus determines the civil score based on the factors like payment history, credit utilization ratio, outstanding debts, credit exposure, debt to income ratio, credit mix, age of credit accounts, number of hard inquiries, derogatory remarks, etc.
As aforementioned, the scores are calculated on the basis of certain factors. So, before going for civil score check online, it is significant to get an understanding of these terms. Let’s check out the factors influencing the financial health of civil consumers.
Payment history : Borrower’s payment history is the biggest factor accounting for almost 30% of the civil score. This one factor has the potential to either make the scores impressive, or drag them down to the extent. Therefore, it is suggested to avoid missing or delaying payments; otherwise it will be marked on the report, ultimately affecting the scores poorly by up to 100 points and this could remain on the report for up to 7 years. On the other hand, if you have paid the bills and EMIs on time, then the potential lenders would be keen to offer you quick loan approvals.
Credit utilization ratio : Credit utilization or credit exposure is another factor ideally responsible for civil score development. Credit utilization is the credit limit being exposed to the total income or simply debt to income ratio. Experts believe that a borrower should not exceed more than 30% of their available credit limit as the higher utilization ratio suggests that the borrower is credit hungry and financially irresponsible.
Credit mix : Though it makes just a little of 10% contribution to the overall credit score, lenders are pretty much interested in this factor as well. Lenders are keen to learn that the applicant has an experience to handle different types of loan accounts, both secured and unsecured. Whenever an application is made, lenders conduct a civil score check to determine whether the applicant has handled a particular type of loan account is past and has responsibly made the timely repayments.
Hard inquiries : Whenever a person applies for a new loan or credit, a hard inquiry is pulled by the lenders to check the applicant’s credit report and determine their creditworthiness. A higher number of hard inquiries showcase the applicant as credit hungry and the lender may decide to either reject or put the application on hold. Therefore, time your new credit applications if you genuinely need loan or credit card approvals.
Age of credit accounts : Although, this factor is often overlooked by the applicants, lender’s are every bit alert and attentive before sealing the application approval. So, if you are new to the borrowing world, even with a hefty monthly income, then some creditors might keep a one-hand distance to approve the application due to less credit management experience. Meanwhile, if you have older loan accounts, then the lenders could be very well aware of your repayment history and financial behaviour, and finally approve the new loan application.
To no doubt, digital platform has made things extremely convenient and hassle-free, including online civil score check. As it is practically significant to check the credit report often, it is also essential to understand the process to do so.
Meanwhile, when you check the credit report, make sure to go through the details and information mentioned on it very carefully. Any error on the report can cost you heavy in financial future. In fact, even a minor spelling mistake can leave a negative impact on the overall score.