Today, let us understand a few terms related to a loan, credits, credit report, credit score. The first and the foremost thing; Credit. A credit is considered as any type of financial help that is taken from a financial institution which is either a bank or an NBFC (Non-Banking Financial Company). Credit involves two types. Loans and credit cards. The credit limit of the credit card acts as a loan amount. There are different types of credits. Secured and unsecured type of credit.
Any credit which has security kept against the loan amount taken is secured credit and any loan which does not have a security kept against the credit taken is an unsecured type of credit. Home loan, Auto loan, Loan against property, Gold loans are examples of secured credits. Personal loans, Education loan, Credit cards are unsecured line o credit. The other type is a fixed and revolving type of credit. And a loan that has fixed tenure and will get over after a few time is fixed credit and a credit where the credit limit is restored after the payment is a revolving type of credit. Usually, all the loans are considered as a fixed line of credit and the credit card is a revolving type of credit.
A credit score is a three-digit number between 300-900. it is established by five parameters: Payment History, Amount Owed, Length of Credit, Credit Mix and New Credit. With individual parameter and the weightage given by different credit bureaus makes a credit score. Credit score, detailed information about all the credit and the credit inquiries made, credits applied for with the personal detail of the individual makes a credit report. There are four credit bureaus in India. Transunion CIBIL, Experian, Equifax and CRIF Highmark which provides the credit score and helps with the report too. CIBIL (Credit Information Bureau India Limited) was the first ever credit bureau established in India in the year 2000. Many would also say CIBIL score instead of credit score as for many years that was the only bureau that helped with the credit score and credit report of any individual.
While talking about the credit score, any score that is in the range of 750-900 is a good credit. Any score that is between 600-750 is an average credit rating and anything below 600 is bad or low credit. With the five parameters mentioned above the score is derived and then is bifurcated like this. Obviously, a bad credit will face difficulties when the borrower would want to apply for new credit as that shows the low creditworthiness on an individual and makes it a risk profile for a financial institute to approve the credit for.
How to change the credit profile status from bad credit to good credit? One must follow a few of the basic rules.
These are the major and the easiest points to be taken care of while changing the bad credit status to good credit status which would not let a borrower fall in bad credit personal loans which would make it difficult for him/her to deal with!