When you apply for any kind of loan or credit score, one of the first things lenders check is your credit. score to determine your credit eligibility. Many lenders have also started factoring in your credit score while setting loan rates. Hence, a good credit score not only improves your chances of getting a loan, but also can help you in getting it at a better rate of interest.
It is critical that one stays aware of her credit score by checking and monitoring it at least once every three months, regardless of the need for a loan.
Here are top five reasons why it's necessary:
You Will Be Aware Of Your Creditworthiness
Lenders and credit card issuers use credit scores as one of the first filters for evaluating your creditworthiness. Hence, checking your credit score periodically will give you a fair idea about your creditworthiness and take appropriate action to maintain or improve it. This will prevent your future loan or credit card application from getting rejected due to lack of credit score.
It Will Help Identify Clerical Errors
Credit bureaus prepare your credit report on the basis of the information provided by your lender and credit card issuers. Any clerical error by the lender or the credit bureau regarding this information may lead to the inclusion of wrong information in your credit report. Such information may adversely impact your future loan and credit card eligibility. The only way to detect wrong information is to fetch your credit report and look for such errors. Report the errors, if any, to the concerned bureau for rectification.
It Will Enable You To Detect Identity Theft
Identity theft refers to the wilful misuse of a person’s personal information to conduct financial transactions. Fraudsters can use fraudulently obtained information to apply for credit card or loan in someone else’s name. As your credit report lists all the credit-related transactions and enquiries, periodical fetching of your credit report will help you detect fraudulent credit enquiries, if any, in your name.
Unnecessary Hard Enquiries Can Be Avoided
Every time you make a loan or a credit card application, the concerned lender or card issuer will fetch your credit report from the credit bureaus to evaluate your loan application. When a lender checks your credit report from the bureau, it's considered a hard enquiry. Too many hard enquiries within a short span of time is likely to reduces your credit score. It's best you check your credit report regularly, to give you a fair idea of your loan eligibility with regards to credit score. This can help in planning your loan applications accordingly and take necessary steps to preserve or improve your credit score. A credit score of 750 and above is considered good by lenders usually.
Important Tips On Fetching Credit Reports
Currently, there are four credit bureaus in India — TranUnion CIBIL, CRIF High Mark, Experian and Equifax. Each of these credit bureaus follows its own credit scoring methodologies. Hence, each of these bureaus will show different credit scores for the same person. Thus, fetch your credit report from each credit bureau at least once a year
Additionally, you can fetch your free credit report and its monthly updates from online financial marketplaces. These marketplaces will also apprise you of various credit cards and loans available, basis your credit score and other factors. Their monthly updates will also apprise you of any changes in your credit score, which can help you in instilling financial discipline required for improving or maintaining your credit score.
The author is the Chief Product Officer at Paisabazaar