I have often seen my US based friend debating over which card to use for a transaction and calculating how his credit score would be affected but didn’t really understand what this score was and how it affected his life – only that it was majorly important!
Now it is time here in India that I better understand what a credit score is, how is it calculated and how it affects me. Because the next time I apply for a new credit card or a loan, the answer will depend on my credit score.
A credit score takes a ‘snapshot’ of your credit report and through advanced analytics turns the information into a 3-digit number representing the amount of risk you bring to a particular transaction. More simply your credit score sums up for the bank, the credit card company or any other financier, your credit worthiness. It will indicate to these people how risky it is for them to give you the loan or the card that you are asking for.
So if you have been good, and paid your EMIs on time, made credit card payments regularly and not taken too much of credit then you have a favourable score and you can definitely negotiate and get a lower interest rate on your loan and get many more benefits as an individual with good financial discipline. The reverse is true as well, if you have defaulted on your EMIs time to time or delayed card payments, or your cheques have bounced often enough, then your score will reflect this and the bank can decline completely or offer you a loan but at a higher rate of interest.