Credit Score

By now you have probably understood that scores are not only important in school or college mark sheets but also have immense intrinsic value in real life as well. Each and every activity you perform leads to adding up a score in your mark sheet. The score can be positive or negative. When you are performing in credit market you too need to perform accordingly that will help you to add positive score in your credit report card.

CIBIL Score reflects Your Financial Credibility to a Lender.

CIBIL Score reflects Your Financial Credibility to a Lender.

By definition Credit Score is a three digit or just a number that tells the nature of debtor you are just like our school days. The marks in our report card were the reflection of our credibility in school days and the scores in credit reports reflect how well or bad debtor you are.

Money lenders, insurance companies, credit card providers, banks, employers and other business owners check credit score of individuals to know about their credit history. They get to know how people who are seeking for loans or jobs or insurance are financially responsible to handle debts. If you have high credit score then you are through for any loans or consolidation of debt. But if the opposite happens then it will be bit tough for you to get any further loans or even jobs in future.

How does Credit Score work?

Factors that have an impact on Your CIBIL Score.

Factors that have an impact on Your CIBIL Score.

Credit Score depends on the financial history or credit history you have till date. There are some points that are taking into account while calculating credit score. The points include:

  • Credit Repayment

Check your previous loan history, if you have successfully paid all your bills and repayments on time then you score more. On the other if this didn’t happen and you are late by more than 60 days then your mark sheet will show a downward trend.

  • Length of the Credit

If the length of your credits is longer than others then your score is more than others. It can be years or can be months, longer the length of credit more your score is.

  • Nature of Loans

If you have clean repayment history then the question arises what type of loan you are having at this moment. Installments and mortgages are a big help here.

  • Other Factors

Other factors like if you are a new debtor then how much money you owe apart from the loan is important. Lender will surely want to know whether his debtor has the ability to repay him or not.

Accounts that Reflect in Your Credit Report

As mentioned before that there are factors that affect your credit score and there are several accounts as well that help you to trigger your score as well.

Installment Account

Installments are common. Auto loans, home loans, personal loans, education loans, mortgages and other such loans fall under installment accounts. In these accounts one has to pay in fixed and full amount every month. The length can be more or less than other accounts. But the monthly amount will be fixed.

Revolving Account

Revolving accounts are those in which the debtor does not need to pay a certain amount each month. For example if your monthly pay is Rs. 30, 000/-, in revolving account you can revolve the pay as per your requirement. You can pay any amount depending on the current balance and rest can be pushed to next month or vice versa. Bank or Retail credit card account is an example of such accounts.

Open Account

Open account is much more of a mixture of these two other accounts. It has the nature of installment accounts and also the nature of revolving account. In open account you don’t have any fixed amount to pay in each month. But whatever be the amount you have to pay in full at the end of every cycle. This open account is similar to utility bills like electricity. You don’t know how much to pay in each month. But you have to pay in full.

Credit Score and Closed Accounts

Closing your Credit Card(s) in not a wise idea after-all!

Closing your Credit Card(s) in not a wise idea after-all!

Closing an account affects your credit score big time. It leaves an adverse affect on your credit scoreboard. Closing an account may save you from high annual fees but it can negatively affect your credit score as well. Closing a debt account like credit card for example saves you from the burden of debt that comes with its usage. But closing a credit card indicates that you are not able to manage your finances wisely. This brings down your credit score. Ideally you are supposed to have a mix of secured and unsecured debts along with investments and savings to have a high credit score (and obviously regular on time payments are also equally as important). So instead of closing a credit card you may go for a regulated use which will help you build your credit score without burdening you with any unwanted debt.