What is credit score used for? - In simple terms, Credit Score is an important factor in determining whether a person is eligible to get a credit. Credit Score refers to the ability of a person as to how efficiently he services his loans or debts. It is a measure of credit worthiness of any person.
How is Credit Score used by a Lender? - In current scenario, lenders consider credit score as a major factor in deciding whether a loan can be extended to a person.
There are following entities which make use of Credit Score during there decision making process:
You can use your Credit Score to know your ability to pay off your debts. If your credit score is over 750 then it shows that you have been quite regular in paying your debts/ loans in time and have not defaulted. This credit score will also inform you as to whether you can easily get a loan. If you have a good credit score then you can avail the loan at lower interest rates and on favourable terms and conditions.
RBI has directed each credit bureau to provide a free Credit Report every year to any person. You must get yourself updated with your latest credit score by availing this free facility.
(2) Banks, Creditors & Lenders
Credit Score is very important in determining your eligibility to avail loan, especially Home Loans which are long term loans ranging from 20 years to 30 years. Whenever you want to avail a loan, the lender checks your Credit Score along with other things such as your income, your employer's details, your mortgages, etc. before approving your loan. Credit Score implies to financial health of a person. It is very significant factor during loan approval process by the bank and further, it is readily available.
Employer can also use Credit Score in order to assess the credit history and financial health of a person. This score is mainly required by the employers of banking and financial industry and is used to know whether a job applicant is eligible to get that job. A good credit score eliminates the possibilities of rejections.
If you want a house on rent, the landlord may check your Credit Score in order to see whether you have made regular payments of your dues, if you have defaulted, how much credit you have availed, etc. The landlord will also be able to make a fair assessment of the security deposit to be taken from you, in case he gives the house on rent to you. Your crdit score will be an influencing factor in deciding whether he should let you take his house on rent or not.