One must always live within their means and manage their finances wisely to lead a happy and fulfilling life. Especially after the pandemic, where jobs and income are becoming increasingly difficult to come by, people must inevitably manage their income wisely to avoid untimely bankruptcy.
Sometimes seek out loans, personal loans, and credit cards in times of financial distress while unwittingly committing to an arrangement they often have little knowledge about.
Likewise, people remain ill-informed about the importance of credit scores when obtaining loans and credit cards over debit cards. They are blinded by the prospect of buying goods even when having little or no in-hand cash. And by the time they realize their mistake, it becomes too late to rectify their error.
This brief piece aims to firmly reinforce the concept of the credit score, the importance of keeping up a healthy range, and where exactly you can check your CIBIL score for free.
A CIBIL score or credit score is allotted to an individual. It aims to reflect their financial data, such as their credit or loan history, repayment frequency, and punctuality.
This score is allotted to an individual by the Credit Information Bureau (India) Ltd or CIBIL by taking into consideration all the information provided by the leading banks and other financial institutions in the country. This score is a carefully constructed metric that determines an individual’s creditworthiness.
CIBIL score is an indispensable medium and has many practical uses if a high enough credit score is maintained. Some benefits of a good credit score are:
One of the major incentives to maintain a high CIBIL or credit score is to receive a significantly reduced rate of interest when seeking subsequent loans.
An excellent CIBIL score not only manages to bring a relaxed repayment schedule but also can be the difference between paying lakhs of rupees extra over and above the capital of the loan.
One of the other major advantages of maintaining a good credit score is that it signifies to the lender that you stay true to your repayment schedule, and they would face no risk by entrusting their money to you.
Those with a high CIBIL score generally get their loans (even if it is a low-interest loan) approved within days of the request, while on the other hand, those with a low CIBIL score fail to secure even those loans which come with a hefty interest rate.
Imagine that you are a money lender, and you are faced with two options to entrust your money. The first candidate has always honored your deadlines and repaid the money on time, while the other candidate has regularly flouted payment deadlines. Who would you entrust your money to?
You would obviously opt for the first one as trust has been established. That level of trust would allow the lender to even extend the credit limit on your credit card as they would feel that even their exorbitant sum of money is secure with the right candidate.
The credit scores generally range from 300 to 900. Each credit score range entails a significant meaning to any bank or credit association. These connotations are as follows :
NH/NA category - This signifies that you have no credit history and have either taken no loans or have never used a credit card. NH signifies 'No History,' i.e., no credit history to speak of.
300 - 549 - This category is a red zone for potential moneylenders as this signifies a bad credit score. Credit scores in this category are some of the worst CIBIL scores.
550 - 649 - This category signifies a fair credit score and is better than a bad credit score. It indicates that repayments of loans are not entirely punctual, but they do nevertheless happen. Banks would still be wary of giving a loan with such a credit score.
650 - 749 - This category signifies a good credit score and means that all loans are regularly repaid with a few exceptions here and there. There is room for