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1. I have a high credit score because I repay my credit card dues on time. Now I can get a home loan for the total cost of the property. Thanks to my high credit score my bank will see me as a creditworthy borrower.
Correct option is B - The credit score is one of the factors that banks consider when approving a loan. When it is a big-ticket loan such as a home loan, they will look at your age, income, property value, value of other assets, etc, along with your credit score. The loan amount sanctioned will be only 75-80 % of the property value, which is the loan-to-value ratio that banks allow. Also, your loan amount will be to the extent that your EMI is less than 40% of your total take-home pay. Your high credit score means faster approval of your loan application and in some cases better interest rate for your loan.
Correct option is D - Your credit score is impacted when you avail a new loan or a new credit card, as your loan outstanding amount changes because of regular repayments, if you miss any EMI or credit card repayment or even if you make an enquiry or apply for a new loan or credit card. Any action related to any kind of credit instrument, triggers a change in your credit score and credit report.
3. What is the best way to improve my credit score?
Correct option is D - A high credit score has several advantages such as faster approval for a loan or credit card application, better interest rates when applying for a loan, a higher loan amount, etc. If your credit score is low, it could take time to improve. But you can improve it gradually by adopting the above-mentioned practices. Additionally, also ensure that your credit utilization remains at reasonable levels, typically at 30%. This is the amount of credit you utilise as compared to the total credit limit available on your credit card.
4. It does not matter if my credit score is poor in the record of one Credit Bureau because it will be different in the records of the other bureaus. Hence, I can get a loan easily.
Correct option is B - If your credit score is poor in the record of one Credit Bureau, it will largely be the same on the records of all the other Credit Bureaus as well. Banks share information about their borrowers with all the Credit Bureaus. This is as per RBI’s rules. Since all Credit Bureaus will calculate your credit score based on the same data your credit score will be on similar lines, with marginal variation based on each bureau’s algorithms and scoring methodology.
5. I had defaulted on a personal loan two years back. But last year I settled the loan and got a closure certificate. How long will it take for my credit score to improve?
Correct option is C - A default will remain on your credit report for approx. seven years. If you have settled your loan, it will be closed in the bank’s records. In your credit report, it will be ranked lower than clearing off your loan in full, but higher than default. So, while there will be a slight improvement in your credit score, the negative impact of the default will continue for some time. Even if you don’t receive reminders from your bank about your pending EMI, remember that the data is captured in your credit report. Hence, pay your dues in full and on time.
6. I deposited Rs 5 lakh in a Fixed Deposit with my bank. This will pull up my low credit score.
Correct option is B - Banks only share information about your loans and your repayment track record with Credit Bureaus and not your investment details. Credit Bureaus calculate your Credit Score based on the details of your past and existing loans and your repayment track record. Since they have no access to your investment information, they will not use this information while calculating your credit score. However, the FD will improve your overall relationship with your bank and you may be eligible for other services from your bank.
7. It is a good idea to avoid any kind of loan to keep your credit score high?
Correct option is B - Not having any kind of loan against your name does not mean your credit score will be high. It means that you will not have any credit score or credit history. A total lack of credit history will make it difficult if you want to borrow in the future. Lenders will be wary of approving your loan if they have no idea about your repayment capacity or creditworthiness. To build a credit history and maintain a credit score, use a credit card regularly and repay your dues on time.
8. Only lenders can access and use your credit information.
Correct option is B - Today, other service providers, such as insurance companies can also access your credit information and credit history. They use this to calculate the credit-based information score. This score is used to calculate how much premium you can pay for your insurance policy. Lenders such as banks and non-banking finance companies have to mandatorily share their borrowers’ details with credit bureaus and can also access the same data from other lenders via credit bureaus. Insurance companies are not required to share any data with credit bureaus but can access borrowers’ information.
9. What is the easiest way to maintain a high credit score?
Correct option is B - Maintaining a good repayment track record by paying your loan EMIs and credit card dues on time will ensure a high credit score. So will a good mix of unsecured (personal loans, credit cards) and secured loans (home loans, auto loans, etc). Even using your credit card within reasonable limits can prop up your credit score. Ideally, don’t exceed 30% of your total credit limit.
Correct option is D - The most common reason for a bad credit score is not repaying your loan or credit card due on time or not repaying your dues entirely. Other reasons include not having the right balance of loans, using your credit card limit to the full, enquiring about loans or credit cards too frequently and checking your credit score frequently. Even if you have settled a loan in the past, i.e. repaid partially and got a closure report from the lender, it may hurt your credit score.
11. I have a credit card with one bank. Now I am applying to a housing finance company for a home loan. Since it is a different lender, I will have to provide my credit score to get my loan approved.
Correct option is B - It is mandatory for all lenders - be they banks, NBFCs, or HFCs - to share information about their borrowers with the four Credit Information Companies or Credit Bureaus operating in India. When any lender wants to check the credit score or report of any borrower, they can access it from the credit bureaus. This is routinely done when a loan or credit card application is being approved. Hence, when you apply for a loan, the lender will request your credit score and credit report from the credit bureaus. You need not provide the credit score.
Correct option is A - Credit Score is given in a range between 300 and 900. The higher the score the better it is for the borrower. If your credit score is above 700, your loan or credit card application may be approved faster, or you may get better terms on your loan. For instance, you may get a lower interest rate than a borrower who has a lower credit score, even if you both have the same income and other eligibility criteria. On the other hand, if your credit score is lesser than 500 your loan or credit card application may take time to be approved. Or the lender may not agree to the loan amount you ask for.
13. Is a credit score the same as a credit report?
Correct option is B - A credit report is a summary of the borrower’s credit history. It has details of the number of loans taken, the time left for repayment on each loan, if the repayment is on time, etc. It also has details of past loans that have been repaid or settled. The credit score is a three-digit figure that tells the lender about the borrower’s creditworthiness at a glance. Lenders consider both the credit score as well as credit report when approving a loan.
Correct option is A - A Credit Score tells a bank or a non-banking financial company how creditworthy a borrower is. It is calculated based on information about the borrower’s existing loans and credit card repayment. Lending institutions share this information with Credit Bureaus. Hence, only individuals who have taken a loan of any kind or availed a credit facility from a formal lending institution will have a credit score. It could be a credit card, personal loan, home loan, education loan, gold loan, auto loan, business loan, loan against property, etc.
Correct option is A - A Credit Score is a numerical representation of your creditworthiness as a borrower. It indicates how likely you are to repay your loan EMI or credit card payment. It is assigned by Credit Bureaus and takes into account the number of credit lines you have, the total amount of loan you are repaying, your repayment track record, how long you have been repaying the loans, how much time is left for your loans to be repaid, etc.
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