Let's start with the basic concept of credit score and it's rage and how is it determined. A credit score is a number that is derived by five parameters of individual's behavior towards credit. It is a three-digit number ranging between 300-900. 300 is the lowest limit of the score and 900 is the highest. Any score that is 750 or above is considered a good score. The score ranging between 600 to 750 is considered average score and any score below 600 is low credit score.
Payment history: How regular the borrower has been in terms of repayment for the credits they have taken. So, this includes loan EMIs and credit card monthly bills.
An amount owed: The total amount owed by an individual to date and even in current time is the second parameter. The credit card limit is also a type of amount owed.
Length of credit history: How long the account has been open, is the third parameter of a score. Longer the time period, better is the score.
Credit mix: there are four types of credits. Secured and unsecured type of credit. Fixed and revolving type of credit. A good mix of these credits also helps is getting a better score.
New credit: A new line of credit opened, has an impact on the score. But that won’t mean a borrower would keep on applying for the new credits every now and then because that would show a credit hungry behavior.
The question may arise that who gives the score? There are credit bureaus who offers the score. Transunion CIBIL, Experian, Equifax, CRIF Highmark are four credit bureaus in India who provides the score. CIBIL being the pioneer in giving the score many refer credit score and cibil score or a low score as a low cibil score. Each bureau has their algorithm and the weightage for the credit score parameters and that is how they give the score. There may be a slight difference in any particular credit report fetched from the bureau as the analysis method may differ.
Let us now check the impact of a low cibil score in life. One may think that credit score is not as important in life and that wouldn't change anything. But little would they know what a huge mess it can create. The low score gives the impression that an individual is not responsible towards the credits he/she has taken. May it is a loan or the credit card, either or both of the credit lines have not been taken care of. There is no good credit mix in the report that reflects, there is no new line of credits. These all points shows how weak one would be in managing the credit line.
Since an individual has a low score, majorly all the applications for new credit lines would be rejected. Imagine an individual wants to buy a house after the hard work of many years, so he/she goes and applies for HDFC home loan. But the application is rejected as the score is low. Such a disappointment that would be. Not just home loans but a personal loan, education loans, business loans, car loans any of them can be rejected.
A low score profile also implements the risk for the lender. Just to overcome that and the file not turning to bad debt, the lender would charge higher interest rates than usual.
Not just buying a hose, but even renting a house would be a huge task when the score is low. Nowadays even the flat owner check the score in order to be sure about the rent giving a capacity of the person who wants to buy a house.
On higher positions, risky profiles the credit score is checked and there a low cibil score may just ruin the career. As said and know, a low score is an implementation of the negligence one has towards it. That also describes the creditworthiness and irresponsible behavior. Which can cost a job!
If one is facing these difficulties, then they should start working on the score. It is no great and years consuming task. If worked patiently and diligently, then in few months the score will be up!