For many Indians, credit profile plays an important role in fulfilling desires with a regular income is practically impossible. Most of them feel helpless to arrange enough money to fund a vehicle and cover living expenses at the same time. They often need to turn to a loan agency to meet their wants & desires. Though availing of a loan is not a simple process, it calls for a lot of patience & awareness.
Your financial status assesses your loan eligibility. For such an assessment, a major factor that banks scrutinize is your credit history. This history includes your basic loans, credit cards transaction & repayments. The lender generally checks your credit history before deciding to lend you money.
A good credit report or profile is an indication that you are a capable borrower& will rarely default on your loan repayments. Financial institutions have numerous sets of interest rates for different types of loans. But if the applicant has a good credit profile and his creditworthiness– is high, then it would be safer for banks to lend money.
To build a credible credit profile, it is important to look at the concept, what they include & few easy ways to make sure your credit profile is in tip-top shape.
Your Credit profile –also known as a credit report, decides whether you are eligible for any credit & at what interest rate. It is even a major factor in where you can rent your house or find a job. Therefore the credit profile has a huge influence on your daily life.
Is it mandatory to have a credit profile?
It is a common misconception that the credit profile is created when you are born.
If you never had credit accounts, you probably do not have a credit profile yet. So, it is necessary to have a credit history to get your credit profile but, if you lend from credit-based financial instruments, i.e., credit card, home loan, credit limits. Then the lender will always report your transaction activity monthly to the credit report companies (who make your credit profile). As a result, you come up with your credit profile.
What does the credit profile compile of?
A typical profile will include all the personal information, a list of credit accounts, types of accounts & payment history of those accounts.
Breaking into subcategories:
- Personal identity: Your name, date of birth, phone numbers, social security number, current addresses, and employment.
- Credit Information: This includes detailed information on the current balance, credit limits of any credit account (credit cards, mortgages, and loans) you have.
- Payment History: I included all the details of lending money and timely payment details.
- Closed Accounts: Credit information about closed accounts remains on your credit report for 10 years.
- Information related to Credit Inquiries: it includes the list of financial institutions that evaluates your credit history in the past years as a result of the query application, you applied for credit.
Checking and monitoring your credit profile
To avoid any misleading information in the market, lenders generally rely on credit agencies that manage credit profiles and filtering bad debtors. Experian, Equifax, and TransUnion are the credit agencies that provide you a free copy of the report once every 12 months.
Since the information on all three agencies should essentially be the same, you may want to ask for one report every four months and evaluate each time that the information is accurate. But if you have already received a free report from each of the bureaus.
Reasons for Keeping a High Credit Rating
Loan Approvals: To get quick loan approval, one should ensure that your profile is well established. The stronger the credit rating in the report, the quicker the loan approval is.
Lowest Interest Rates on Loans: The interest rate is one of the costs that you bear for taking a loan from a lender. Hence, if you have a good credit image, you need to pay the lowest interest rates. This is because a good credit report depicts that you repay all your debts on time.
Employability: Many employers conduct credit appraisal as part of the hiring process. .If you cannot support financial responsibility, your employer might be hesitant to hire you. That is the reason employers check credit reports before offering jobs.
Maintain sound credit profile
It is important to consider these factors that will help your credit profile:
Make payments timely: The important step to building your credit image is timely payments of your bills and other Monthly Installments. If you do not pay the least amount of your bills on time, it can hurt your market image.
Be sensible and avoid defaults: The lender can check all your previous defaults in your credit report. Hence, it is mandatory to avoid any default payments on a credit card or a loan installment.
Be smart while spending: Keep track of the checks you have written, debit and credit card transactions, and ATM card usage.
Have an emergency fund: keep an emergency savings fund in an interest-earning account. That way, if you lose your job or face any big expenses, you do not have to borrow more as you are comfortable in repaying.
Basic financial habits to maintain a good credit profile:
- Keep all your expenses under control.
- Clear and precise financial goals
- Increase your savings
- Keep a clear cut budget
- Make an effort to live a debt-free life
- Keep your net worth.
- Nurture enough funds for an emergency.
The better your credit profile is, the more your chance of getting loan approval from lenders. So, it is mandatory to maintain your good credit profile to get the best credit facility.
Remember, you may not be able to maintain that overnight, slowly, but surely you will reach the level of a good credit profile by centralizing the above information.