Highlights:
- What is a Credit Profile?
- Here's Why One Must Maintain a High Credit Score
- Simple Tips on How to Improve and Maintain a High Credit Score
Building a stellar credit profile may not be your top priority, but it sure is an excellent way to avail of credit at low-interest rates. Not many people know this but these days, most companies check a borrower's online CIBIL score and report before extending a job offer. They do so to check instances of loan defaults or delinquencies or any other red flags and protect themselves from having an employee that's not an asset but a liability. In this article, we discuss why should borrowers maintain high CIBIL scores and tips to improve one's credit scores. However, before we get to that, let us develop some clarity on what credit profile is.
What is a Credit Profile?
A borrower's credit profile, also known as a credit report, is an electronic record of their credit activities. It shows how much credit a borrower has and how well and responsibly they use credit.A borrower's credit profile contains details of all the loans and credit cards that a borrower is using as well as those they had applied for but were met with rejection.
A borrower's credit profile contains the following sections and information about them.
Personal Information
Under this section, does one find information that helps them identify the borrower, such as their name, address, phone number, email address, etc. This section also contains details about the borrower's previous and current employees.
Credit History
This is the most important part of a borrower's online credit report. It contains details regarding credit repayment. Under this section, one can also find information regarding late EMI payments and loan defaults. Borrowers must know that credit history makes up 35% of a borrower's credit report and instances of late payments and loan defaults stay on a person's credit report for 7 years. Therefore, borrowers must always avail of credit after proper financial planning.
Hard Enquiries
Every time a borrower applies for a loan, the lender with whom they have made an application sends an enquiry for information on the borrower to the credit information bureau. Such enquiries are known as hard enquiries. On the other hand, when a borrower checks their credit score, it is known as a soft enquiry. Soft enquiries do not affect a borrower's credit rating but hard enquiries do. Too many hard enquiries show a borrower to be credit hungry and reduce their chances of availing of a loan on good terms.
Public Record
If the borrower has ever filed for bankruptcy, has ever been a part of court cases or has tax liens against them, information about these things will appear under this section. Information regarding court cases and tax liens stays on a credit report for 7 years. On the other hand, information regarding bankruptcy stays on a credit report for 10 years.
Here's Why One Must Maintain a High Credit Score
Whether you are planning to apply for a loan or applying for a job, you must maintain a high CIBIL score. Here's Why.
You Will Get Approved for a Loan Quickly
If you have a high credit score, i.e. anything above 750, you will get approved for a loan quickly. Such a CIBIL score is a sign of a responsible borrower and since all lenders want responsible borrowers as customers, you will get instant approval on your loan application.
Also Read: Tips to Maintain Your Business CIBIL Score Above 700
You Will Be Able to Avail of the Loan at Low-Interest Rates
A high CIBIL score also gives one high negotiating power. Borrowers whose online CIBIL score exceeds 750 can negotiate with lenders for better interest rates. When you avail of a loan on low-interest rates, you essentially save a lot of money in the form of reduced interest payout over the tenor of the loan. Other than low-interest rates, borrowers who have excellent credit scores often also get offered longer loan tenors, which makes repayment easier for them, and higher loan sanctions.
It Will Become Easier for You to Get your Dream Jobs
Almost all big companies check an applicant's credit score before offering them a role. They do so to understand whether the individual is reliable and will be an asset to the company or not. A high credit score strengthens a job applicant's candidature and increases their chances of getting the job.
Also Read: Ways to Increase CIBIL Score After Job Loss
Now that we know the benefits of a strong credit profile and high credit score, let us share some tips on what you can do to maintain a good CIBIL score.
Simple Tips on How to Improve and Maintain a High Credit Score
- Since credit repayment makes 35% of a borrower's credit report, borrowers must make it a point to keep their credit history clean. Clear bills on time and pay EMIs before the due date. If you miss any EMI payments by mistake, clear them as soon as possible. Set up reminders and auto-payments to avoid missing due dates.
- Keep your credit utilization ratio, i.e. the percentage of credit available to credit used, under 30%. A high credit utilization ratio is a sign of a credit-hungry behaviour and lenders want to stay away from such borrowers.
- If your online CIBIL score is not as good as it should be, you can benefit from limiting your applications for new credit. Do not apply for loans and credit cards until your CIBIL score has reached 750 or higher. In general, borrowers should apply for credit only when they need it.
- A lot of people have the habit of cleaning the minimum due on their credit card. This is a bad habit for one's finances. Paying only the minimum due not only makes one part with more money in the form of interest in the long run but also increases one's credit utilization ratio, which in turn, harms a borrower's credit score.
- Do not close old loan accounts. When you do so, you essentially delete your credit history. When this happens, credit information bureaus have no information on which they can check your creditworthiness and repayment capacity. Thus, borrowers should always maintain old loan accounts.
- Lastly, if you regularly check your CIBIL score and see that your credit rating has dropped down even though you have been a responsible credit user, check your credit report for errors. Sometimes, lenders pass wrong information to credit information companies, which causes a borrower's credit score to go down. Borrowers must check their credit reports regularly and report errors as soon as they see them. Rectifications take time and therefore, one should not waste any time and report errors as soon as one sees them.
Also Read: Easy Ways to Maintain a Good Business Credit Score
Final Words
It is crucial to maintain a high CIBIL score if you want to avail yourself of a loan on beneficial terms and conditions. If you are planning to apply for a loan, check your CIBIL score online first and apply only if your credit score is 750 or above. Anything less than 750 will either lead to rejection or the extension of a loan offer on unfavourable terms and conditions, such as low-interest rates and short loan tenor.
