The more you borrow, the less you pay

CREDIT SCORE

Do you know? When you buy a fridge on EMI that would affect you from driving your dream car? Have you ever wondered on what basis a bank lends you money?  The obvious guess would be income, profession, collateral. Yeah! But there's something more you have to be known before you enter your late 20s.

money.com

A credit score is commonly known as a CIBIL score ( In India). Based on this the bank determines the ability of a person to pay back debts on various parameters. Basically, the accounts are graded based on our credit score. But what are the parameters that determine the score?

RBI licensed 4 rating agencies:

• Experian,
• Equifax,
• CRIF, and
• The well-known CIBIL( Credit Information Bureau India Ltd )

CIBIL gathers information from nearly 2600 institutions such as banks and NBFCs and prepares the report only on request.

FICO's allocation (USA)

    A credit card is the home run of your credit base. Too many card credits will be averaged i.e., it's the same as having a single card with heavy transactions and another risk is failing to pay the bills on time even if you have money to owe. Remember credit cards are charged every day and compounded, How to handle credit cards will be coming soon.

    The interest rate on your borrowing will vary depending on the score you have built. If you fail to pay for a month the score decreases drastically and may intervene on your dream home or with repayment difficulty in subsequent lendings. 

Bloomberg

Too many credit cards Too much of risk

    Diversifying the credit helps you to maintain the score. Have a balance of secured and unsecured credit is called a credit mix. Go with mortgages, credit cards, student loans, personal loans, etc. So that lenders consider less risk in lending money to you. The present and past records of timely repayments, black marks such as frauds, zero account, missed payments, outstanding payments, the recent actions in your account, duration of each credit account are analyzed and based on that we are judged. 

    By paying your credit card bills monthly you are maintaining your score. If you skip then you are charged interest and you have to pay more because of which your debts increase adversely and affect your CIBIL score.

    Fine with credit cards. Your home loans also contribute to the score if the repayment chain is not broken. Why the score plunges after a miss?? is because the amount the banks have lent to you will come under the Non-Performing Asset category after 3 overlooks, which is a serious threat to the whole organization.

 When will you enter the comfort circle?

    Based on the report, the interest rates and the money lent will differ for each person even if you are in the same designation. 

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