Credit Profile Assessment & Benefits

 A credit profile is a document which contains information about your loan repayment and credit card payments in the past. Having a credit profile that shows a healthy repayment history can allow you to avail high loan amounts for low interest rates and even allow you to negotiate repayment terms with your lender. Let us now look at what a positive credit profile can do for you and how you can conduct a credit assessment of your own.

How to Conduct a Credit Profile Assessment

To conduct a credit profile assessment of your own, you must look at the following portions of your credit profile/information report:

• Payment history: You must check whether or not you have repaid the equated monthly instalments (EMIs) of your current loans or the ones taken in the past on time.

• Credit utilisation ratio: Credit utilisation ratio is the percentage of your available credit that has been used up by you. If you have only used around 30% of your available credit, you can say that you have a healthy credit utilisation ratio.

• Credit inquiries: There are essentially two kinds of credit inquiries, namely hard and soft inquiries. When a bank or a non banking financial institution pulls up your credit score, it is considered a hard inquiry. When you do it to check up on your credit score, it is considered to be a soft inquiry. Hard inquiries are recorded in your credit history. Too many of them indicates credit hungry behaviour, which may make a lender wary about granting you a loan. So, make sure that such inquiries are at a minimum if you want to have or maintain a positive credit profile.

• Credit mix: To have a healthy credit mix, you must ensure that you have a balance of secured and unsecured loans. Additionally, you must check if you have a lot of outstanding debt. If that is the case, try to foreclose as many loans as you can.

Benefits of Having a Positive Credit Profile

A positive credit profile can benefit you in the following ways:

• Lower interest rates: If you have a positive credit profile, the lender will think of you as a low risk and creditworthy individual. Such people tend to get preferential treatment from lenders by way of offering loans at lower interest rates.

• Pre-approved loan offers: If you have a positive credit history, you will be offered a bunch of pre-approved loan options as it is a sign of your creditworthiness. Such loans can come in handy when you need a quick loan for emergency expenses or to even go on the vacation that you have been wanting to.

• Longer loan repayment tenures: A positive credit history can also allow you to repay your loans over a longer period of time. This would mean that you will be able to repay your loans with smaller EMI amounts that you can easily fit into your monthly budget.

• Increased credit card limits: Your positive credit profile will indicate that you are responsible when it comes to your loan repayments or credit card payments. This means that the lender will think of you as someone who has a low risk profile. Lenders tend to provide higher credit limits to those individuals who they think can pay off their bills easily.

• Higher loan limits: If your credit profile displays healthy credit repayment history, banks will be willing to give you high principal amount loans. This means that you can perhaps buy bigger homes, cars or more expensive pieces of tech.

• Negotiating power: A positive credit profile will give you the bargaining power you can use when applying for a loan. Financial institutions prefer lending to creditworthy people, and if you have a positive credit history, it will make you a desired customer. You can use this desirability factor to your advantage by negotiating for lower interest rates or processing fees.

• Quicker approval for loans/cards: Since banks prefer lending or issuing credit cards to creditworthy people, they will give very less thought before approving your loan application. This means that with a positive credit profile, you will be able to get loans quickly as and when you will need them.