Introduction

Rahul, a 30-year old IT Professional, working for an MNC company, had recently applied for an Auto Loan. He was in a state of shock when he came to know that his loan application was rejected due to his poor credit score. He had been saving for the down payment of his dream car for the last 6 months and just when he thought he had enough to pay for the down payment and finance the rest of the amount through an Auto Loan, his dreams were shattered when he came to know that his Auto Loan application had been declined.

Rahul had 2 credit cards and a Home Loan and had never missed paying his EMI or card dues. He had no clue, why his credit score was poor despite making timely repayments.

There are many such cases where borrowers find their scores to have suddenly dropped despite paying their EMIs on time. Let us understand why this could happen and why keeping a close track of your credit score is important. But before we get there, lets first understand what a Credit score is and how does it work.

What is a Credit Score?

Credit score is an indication of an individual’s creditworthiness. Higher the score the better is an individual’s creditworthiness and better are the chances of getting the loan approved at attractive interest rates. A typical credit score range is from 300-900. Credit score above 750 is considered extremely good.

How does credit score work?

An individual's credit score is impacted by factors such as repayment performance, number of credit enquiries, credit vintage and amount of unsecured credit utilisation. Missing EMI payments, making too many applications for credit, frequent borrowing of unsecured credit like personal loans can have a negative impact on your credit score. On the other hand, paying EMIs on time, having a good ratio of secured credit like home loan / auto loan to unsecured credit, low utilisation of credit on credit cards and not making too many credit enquiries can have a positive impact on your credit score.

When Rahul availed his latest credit report, he was shocked to see overdues on his home loan which had affected his credit score. He immediately reached out to his financer to understand why they have been reporting an overdue to the Credit bureaus when he had been paying his EMI on time.
Also read how to check cibil score by pan card only at Finserv MARKETS

His financer explained to him that they had revised the Rate of Interest on his home loan upwards 6 months back, as a result of which his EMI had increased. However, they kept banking the old EMI in Rahul’s account and the differential EMI amount was being reported as unpaid. This differential EMI amount had accumulated over the last 6 months and was showing as overdue and unpaid in Rahul’s credit report which had impacted his credit score. Rahul immediately cleared off the excess he was supposed to pay and provided a fresh ECS mandate form with the revised EMI.

Now only if Rahul had regularly monitored his credit score, he would have identified this issue much earlier and got it rectified with his financer and avoided having his credit score getting impacted. It is important for one to keep a track of one's credit score even if one is paying his credit on time. This helps to identify reporting issues by financers or any other anomalies which can be highlighted to Credit Bureaus. You can check credit score on Finserv MARKETS. The Financial Health Check Report(FHCR), provides a detailed analysis of your financial performance along with the CIBIL score.

You can download your report from Finserv MARKETS App. So, what are you waiting for? Head to Finserv MARKETS today!

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