In the world that we live in today, maintaining a high credit score is of utmost importance. A good credit score is your ticket to a line of credit when you are in need of it. Maintaining a good score is no rocket science. All you need to do is follow basic financial discipline. Financial discipline includes making timely repayments on your credit lines, keeping credit utilisation under 30% (the amount of credit you use as against the amount made available to you), maintaining a good mix of secured and unsecured loans and keeping a check on your credit score to ensure that your financial health is in order.
But even when you do your bit to maintain a good score, there are situations in life where your CIBIL score may be under jeopardy when it is not your fault. For instance, if you co-sign or become a guarantor on a loan with another person, you are in effect giving the lender a guarantee that you too are responsible for the repayment of the loan. Thus, if the primary borrower defaults on the repayment of the credit it impacts his credit score as well as yours.
However, there is some confusion in the minds of borrowers about the impact on the score for individuals who sign an apartment lease on behalf of a friend or a relative. Some landlords in India have already begun asking for the CIBIL report of an individual to assess the financial responsibility of a prospective tenant and his ability to meet rental commitment. In case the tenant's score is not satisfactory, he may be asked either to co-sign a rental apartment lease or cough up a higher security deposit.
If you have the reputation of maintaining a stellar score, you may be called upon by a friend or a relative who is unable to get an apartment on rent. While your first instinct may be to bail out a person you are concerned about, think carefully before making such a commitment. While co-signing an apartment lease does not impact your credit score in India directly for now, by doing so you are in effect agreeing to the responsibility of paying rent on behalf of the tenant, in case of a default.
So while you may not land up on the loan defaulter list by signing an apartment lease on behalf of someone else, it will still have an impact on your finances. This is in case you are expected to fill in the shoes of the primary tenant, in case he is unable to fulfil his rent payments on time. Thus, signing a rental apartment lease on behalf on another person is best avoided in the interest of your own financial health. Besides, if your relative or friend does not have a satisfactory credit score, you may want to give his financial habits a second thought to assess why is it that his score is not up to the mark. While for some, a dip in the credit score may be a temporary blip, because of a genuine problem others may have a behavioural problem with regards to finances. It is the latter that you must be wary of.
On the face of it may seem ruthless not to help a sibling or a close relative who is facing financial trouble, and may cause some friction in the short term, but letting finances getting in the way of your relationship for the long term may lead to more serious implications. If he is in the loan defaulter list already, you may be calling for trouble by signing a rental apartment lease on his behalf.
It is therefore best to politely yet firmly decline the request to co-sign on a rental apartment lease for the benefit of your relationship. Your friend or relative may not understand why you are doing so immediately, but if he is driven by logic, he would at some point realise that by saying no firmly, you are doing him a favour. You may in lieu of signing an apartment lease, offer assistance in helping him mend his score if he is willing to accept help.
In India, people who are only getting aware about the importance of maintaining a good CIBIL score, tend to think that credit checks are restricted to loan transactions. This is in fact a myth. Your credit behaviour is not just a reflection of your financial health. There are other instances where you are judged on the basis of your credit history and score, just like in the case of rental apartment lease. Listed below are the other places where your credit score will make a difference.
Many multinational companies or companies in the BFSI segment are increasingly asking prospective employees to submit their CIBIL report along with the other document during a job application. A good credit record indicates that the prospective employee has been responsible towards the handling of his own finances and will be able to shoulder the responsibilities allocated to him in the company. A good credit score of 750 and above (out of 900) will work in your favour when you harbour ambitions of getting a job in a company like the ones mentioned above.
Millennial may be criticised for a lot of things by older generations, but what you cannot fault them on in is their straightforward attitude towards life. In recent times, it is not unheard of young people exchanging CIBIL reports at the time of choosing life partners. While it may seem bizarre to do so, it is in fact a sane thing to do. Finances have been known to break up marriages more often than not. To know about each other’s financial health and more importantly attitude towards managing money before entering into a lifelong commitment is therefore a splendid idea, highly recommended by credit experts!