People invariably get a large number of emails telling them about checking their credit scores and building credit in India. While most of them land up in trash, it certainly makes sense to know what it all means, especially since building credit can be beneficial in the long run. A number that indicates the credit worthiness of a person is known as a credit score. The same can also be done for a business, and then it is termed as a business credit score. Both indicate how trustworthy they are with loans.

credit cards

Who Uses the Credit Score?

Credit card and loan companies are the most common businesses that make use of individual credit scores. Credit scores of most people range from 300 to 900, with 900 being the best. Banks would be most happy to give loans and credit cards to such companies. A word of caution here- after a person gets to know how to check credit score online, he or she should notgo on checking the scores repeatedly for new cards as the checks lower scores. Only the mandatory check must be done, and that too from a reputed website.  

Making Payments using Credit Cards

Indians on the whole have not been very good over the years in using plastic money. However, with the world of business going online completely due to the pandemic, it is natural that credit cards will be used. There’s a method to using the card- after payments are made throughout the month using the card, the bill should be paid with cash or debit card. Spending on both credit and debit cards at the same time may lead to bankruptcy.

A good credit score indicates that a person’s financial situation is stable. It means that the person can be trusted to make payments on time. The simple logic behind owning a credit card is ‘Buy now, pay later.’ However, care must be taken to ensure that the payment amount does not go out of hand.

Providing Personal Data

First of all, it is very important to get a credit card from only a reputed company. One of the main reasons here is that a lot of personal data is required, which includes:

  • Name
  • Date of Birth
  • Mobile Number
  • Address
  • Gender
  • PAN Number
  • Employment Details
  • Last Few Salary Slips

Obtaining a healthycredit score is the first step towards getting approved for a credit card. Credit scores are lowered only when lenders check scores, and not when individual check their scores through third-party websites. The above information is mandatory to receive information from credit bureaus and display to the customers on screen.

Who Conducts Credit Checks in India?

As mentioned earlier, frequent credit checks through individual lenders should be avoided. Here are the different entities involved in doing such checks:

  1. Credit Bureaus – As per RBI (Reserve Bank of India), each credit bureau has been instructed to give a person’s credit score at least once a year, for free.  Once done, this score can either be accessed online by sending them a mail or through their official website.
  2. Third Party Websites – Many financial websites give customers the privilege to check their credit scores for free. These checks are not done by banks or other financial institutions but through direct customer requests. In other words, these do not harm the credit score of a person.
  3. Banks – A few banks that give credit cards also conductcredit checks. These are done either on the payment of a fee or without charges.

Due to several third party websites now being operational in this space, it would be wise to choose the reputed only. Such websites get information from one of the 4 major credit bureaus. Checking scores through third party websites is beneficial due to the following reasons:

  1. Small and hassle free process
  2. Taking scores directly from credit bureaus more than once every year costs a significant amount, but this is free on third party websites

Bureau Scores May Vary

While comparing third party websites or through credit bureaus directly, individuals may see different scores. This is because there are differences among the bureaus, which happens because of the following reasons:

  1. The lender might not be reporting to a particular bureau
  2. The method of score calculation usually varies from one bureau to another

What Should Customers Do?

Credit is an inevitable part of life and cannot be done away with. However, customers can take the following precautions, one of them being payment through credit only, as mentioned earlier:

  1. Bills must be paid on time
  2. Do not fill frequent new credit card applications
  3. Complete limits on cards should never be exhausted. 30% is the approximate limit that is healthy in the long run
  4. Inaccuracies in the credit reports, if any, should be reported