Having married for a few years now, Mr. Khanna decided to buy his own house instead of living in a rented apartment. So, he checked the home loans schemes offered by multiple banks and selected a few. However, a day before he was to send out the loan applications his friend tells him about the importance of credit score. So, he decided to check his credit report first before making any decision only to find out his credit report was bad.
Mr. Khanna was saved by his friend as he got a chance for bad credit fix. However, not everyone is that lucky. Many people don't know about the importance of their credit score, which plays an important role in the approval or rejection of a loan application. This is even more surprising because now the government has allowed the people to check free CIBIL score once every year.
Your credit score is a score of your creditworthiness. The higher is your score, the better are your chances of getting a loan.
There are four major credit agencies in India that create and update the credit scores of credit users. These are:
So, now comes the big question:
The right answer is more than just an affirmation or negation. However to understand that we need to go in detail.
While it's important to know what your credit score is, the choice of the credit agency is of little significance. This is because all the major credit bureaus (as mentioned above) give importance to the same factors when calculating someone’s credit score. So, while you may get different ratings from all of them, your actual creditworthiness will be almost the same. Another factor to take into consideration here is that different agencies follow a different score range. For instance, while CIBIL gives a score ranging between 300 and 900 Equifax gives one that ranges from 1 to 999. Thus, for an actual comparison, you will also need to convert one's score in accordance with the other, which is not only complicated but also impractical.
It is futile to find out the name of the credit agency your lender is associated with. For starters, you won't find that information that easily. If you are lucky you may find it on its website. Otherwise, you will need to contact a representative in person.
Since CIBIL is the most popular credit agency in India, it's better to stick with that only. You don't need to check your credit report that's provided by other agencies such as Highmark or Experian. This will only make things more complicated for you. So, you can just check your CIBIL report every once in a while to see if your credit score is in a good shape or whether you need to work on bad credit fix.
You can avail free CIBIL score once every year, which is a good reason to become credit-responsible. In fact, you can check your credit score as provided by other credit agencies too for free to get a better idea of your financial standing. However, in the long run, it’s best to just refer to the CIBIL report only.
Even if you can just keep your CIBIL report in a good shape and improve score over time, that's enough. You won't have to worry about getting a loan, or finding jobs. In fact, the improvements in your CIBIL report will also be reflected in other credit reports such as Highmark credit report or Equifax credit report. This is because they all use a similar formula and give a high score for timely EMI payments, low debt, and moderate credit utilizations. Similarly, they will all deduct your score for every late payment or loan default.
You don’t need to complicate things. Just use your credit cards responsibly and pay your loan EMIs on time. Without a doubt, your credit score will increase automatically.