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How to Settle the Credit Score ?

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"Why do you carry so many credit cards? Don't you know banks don't give loans easily to people with multiple credit cards?"
"Why don't you use a credit card? It actually improves your chances of getting a loan."
"What, you have never taken a loan in your life? You are going to have problems getting a home loan."
"Why did you close your loan so early? Banks typically have a problem giving loans to people who foreclose very early.'


These so-called experts with their list of credit commandments that guarantee confusion more than comfort spare neither the miser nor the spendthrift. Both sets are subjected to tips on how to improve one's credit score and brighten prospects of getting a bank loan.


Originally propagated by credit information companies like Credit Information Bureau (India) Ltd (Cibil), Experian and Equifax as part of their campaign to educate the average individual about the importance of a good credit history, the dos and don'ts list has acquired a demonic flavour at the hands of some of these experts. For example, a 35-year-old executive at a private firm was told by his financial adviser that he should consider taking a loan just because it will improve his credit score. Another was asked to get rid of his multiple credit cards to boost his credit score. The expert wouldn't budge even after the person explained to him that he was using those cards for specific purposes like air travel, buying petrol, eating out and so on and that he gets discounts and other benefits on those cards. Also, those cards were issued to him free by the banks he had accounts with.


Even I was told recently that I should go for a loan because it will enhance my credit score and my chances of getting a loan from a bank in future. Somehow the Gujju blood in me doesn't buy the argument that I should pay interest now on a loan to get a loan in future."


Enter Credit Score


What's the score is almost always about cricket in this country. However, loan seekers have started dealing with another score --credit score -- in the past few years. Cibil was launched in 2000, but in the past three to four years the company has managed to get into the consciousness of loan seekers with their credit score and credit information report.


When we started out there was very little consumer awareness about the importance of having a good credit history or a good credit score. Our efforts were to fill this gap through a series of educative articles in the media.


However, these seemingly simple pointers (minus the valuable details) have become almost a mission statement for some self styled advisers.


Banker Day at Work


Banks wouldn't go beyond credit score while assessing loan applications. Any bank would not overlook the history of your relationship with it


The objective of a bank's credit appraisal process is to evaluate the capacity and the intention of a customer to repay a loan as per the agreed terms.


Bhe bank collects information, relevant documents from the applicant and the credit information from bureaus. This information is then processed against the predefined credit policy of the bank and, depending on the type and quantum of loan, typically banks collect the applicant's personal information. This provides insights into the applicant's capacity to repay a loan. The credit bureau report provides details of the applicant's existing and closed loans, card details like amount sanctioned, tenure and promptness of repayment. This clearly indicates the intention of the applicant, in terms of discipline towards debt obligations.


It is always a combination of factors that helps secure a loan. "Of course, a credit score of above 650 would definitely help, but a bank will also look into a host of other factors, including age, growth profile of the individual, demographic profile, the profile of the assets…


Fixing the Problem


Typically, banks inform the customer about the reasons for the rejection of her loan. If the customer finds that the reason given is wrong information about poor credit repayment in the past, then she needs to contact the credit bureau and the lender who reported the same and get the same rectified. The regulators have put in place a well-established process with clear timelines to help the customer carry out the rectification."


Individuals shouldn't look for oversimplified methods to improve credit scores. Individuals should remember that if they have a loan for an extended period of time, they should make payments on time.


At the end of it, it all boils down to good financial habits, say financial advisers. Multiple credit cards won't spoil your chances of getting a loan, but your spending and repayment habits definitely can. Similarly, entertaining every other offer for a personal loan won't automatically disqualify for a loan, but you may have to do some explaining to the bank. This is because your credit history will show that you are always looking for credit. Always remember that there are credit information companies maintaining your record of payments on loans and credit cards, and submitting it to banks and other lenders on a monthly basis. And that eventually settles your credit score.

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