Updated: April 11, 2022 1:33:00 pm
When you apply for a loan or credit card, the lender checks your credit score to ascertain your eligibility for that credit line. Having a good credit score is thus one of the prerequisites of getting a loan. So what does a credit score represent?
A credit score is a three-digit number that tells the lender about your creditworthiness basis your credit history. Your creditworthiness tells the lender about your potential to take a loan and repay it.
A credit score is assigned after considering your historical data. It ranges between 300 and 900. A credit score of 750 or above is considered ideal. Besides making it easier for you to get a loan, a good credit score also empowers you to negotiate the loan terms and conditions in your favour.
Your bank shares the information about your credit with RBI-licensed credit bureaus in India. The credit score may differ for each of the bureaus but the parameters broadly remain the same.
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Since credit score is an important aspect of financial life, you must regularly check it. In this article, we list three important reasons to check your credit reports and credit scores regularly. Take a look:
Helps in identifying an error
Your credit score is the result of the historical data that is reported by the banks to the credit bureaus. Therefore, the information provided here should be accurate and complete. You would not want to land in a situation where your credit score falls because of a reporting error. Checking your credit report and score regularly will help you spot any error about your credit history as well as personal details. These errors can be flagged to the lenders and banks. You can also compare the reports available with other bureaus to see if your credit data is being reported uniformly. So checking your score regularly would save you from errors that can bring down your score.
You can track your creditworthiness
Whenever you apply for a loan or a credit card, the lender or issuer will first check your credit score to study your creditworthiness. Once you will start checking your credit score, you will become aware of how your credit behaviour shapes your credit score. You’ll see how, for instance, a late payment can pull your credit score down. In case your score is low, you can take steps to improve it to better your borrowing prospects. It takes time to build a good credit history and maintain it. If you foresee an upcoming need for a loan, it would be wise to check your score regularly and maintain it.
Helps you spot identity theft and hard enquiries
Checking your credit score regularly will help you spot identity theft and avoid it. Identity theft happens when a person impersonates another person by stealing crucial data such as name, date of birth, PAN details, phone number, bank account number etc. Your identity can be stolen and used for various financial transactions. Your credit report will indicate if your PAN has been misused to take a loan. If you find any unauthorised or fraudulent activity in your report that has resulted in a hard enquiry against it, you should flag it immediately to the bureau and the financial institutions.
There is a difference between a hard enquiry and a soft enquiry. While a hard enquiry refers to an enquiry that a lender does to assess your credit report and score when you apply for a loan, a soft enquiry is when you check your credit score. A hard enquiry lowers your credit score and a soft enquiry does not impact your score anyway. It keeps you in control of your credit habit. There are various platforms available that help you check your credit score and sometimes notify you every time the report is refreshed. With most lending institutions linking their lowest rates with credit scores, it is always better to keep your credit score healthy to grab the best deals.
The author is the CEO at BankBazaar.com. Views expressed are that of the author.
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