A Conversation on Credit Score

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“Sir, may I have your credit score report?” asked the banker.

“Credit score what?” I asked him back.

The banker could read my blank face and was sure that I knew nothing about the credit score. The very next moment I was served a cup of tea and some very useful information on credit score.

However, before shedding light on that conversation, let me introduce myself.

I am Sameer and I’m a businessman. It was in 2013 when I started my business of home appliances and other electronic items. What started from a little rental shop, moved at a good pace and didn’t take much time to cross the break-even point. Growth at every step encouraged me to step up and invest more money into my business. That’s when I thought of applying for a personal loan and dropped in at this bank.

Back to our conversation – my very next question to the banker was, “What is credit score?”

Banker – Sir, a credit score is a three-digit numeric summary of your entire credit history. In simple words, it is an assessment of a borrower’s creditworthiness. Banks and lending companies use this information to decide whether or not to lend to a particular borrower. If a borrower has a high credit score, it allows him or her to get a loan at affordable interest rates.

Me – And, who builds my credit score and on what basis?

Banker – Credit scores are provided by credit bureaus like Experian, CIBIL and Equifax. These bureaus gather your repayment information from all banks and NBFCs (non-banking financial companies), use their own proprietary methods and calculate the credit score.

MeHow long does it take to build a credible credit score? Will a good score really help me get my loan approved quickly?

Banker – Yes sir, definitely, it will. But, when you have no credit, it takes a long time to build a good credit score. It will make you feel like an impatient child on a long trip asking, “Are we there yet?”

MeWhat if I have never used a credit card? How does one deal with ‘no credit history’?

Banker – Sir, to get a loan, it is favourable to have a strong credit history but you can still avail a loan or a credit card from many lenders for moderate amounts. So, a good way to start building a credit history is to get a little debt or a Credit Card and pay your dues on time.

Me – Do my repayments on utilities help?

Banker – Utilities are being considered for being used in Credit Score computation. Going forward, of course, paying your bills on time will help your credit, but if you’re looking to build a good credit score, simply paying your gas, electricity, or other utility bills only won’t be of much help as of now.

MeAlso, my credit score fell sharply after I applied for a loan with multiple banks – why would this  happen?

Banker – Sir, when you apply for credit, the lender conducts an inquiry on your credit report. A lender may perceive a consumer as being desperate for credit or as a potential credit risk if he has had too many credit inquiries or has applied for a loan from different platforms. Different lenders, however, adjust differently to such cases.

Me – What is the minimum credit score required to get a loan from a government bank, private bank or a private money lender? How can I improve it?

Banker – In general, credit scores range between 300 to 900 and a score of 700 or above is generally considered good. However, different lenders have different levels of evaluation to analyse the credit reports and conduct risk assessments. Online lenders like CoinTribe analyse your credit history in-depth and may help you get a loan if you have a good credit track record, despite a low score owing to other factors.

The best ways to boost your credit score are –

  • Learn what counts. Take time to understand how scores are calculated. It will prevent you from making a rookie mistake like forgetting to make a payment.
  • Pay your dues on time to become more loan worthy.
  • Keep up the good work. A good credit history stays on your credit report forever. So, even when no one is pulling out your credit score, put your best foot forward.

 

MeThank you Mr. Banker.

Banker – All the best Mr. Sameer.

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