As a smart investor, you probably track the performance and progress of your investments regularly. However, it is rare to find a person in India who regularly tracks his/her credit score. For those who are not aware of this term—credit score is a score you obtain based on your borrowing history and the repayment performance. Higher credit score denotes higher creditworthiness and vice-a-versa. The Credit Information Bureau (India) Limited (CIBIL) assigns credit scores to individuals. This helps borrowers secure loans at fair terms, and it also helps banks identify the risk involved in any proposal. No wonder it becomes easy to apply for a loan and get it faster if you have a high credit score. At present, the report is a paid for service and people are often reluctant to track their credit scores. However, “paid nature” of the report is not the primary reason for the lack of popularity of credit scores among borrowers; it’s the unawareness.
But there’s good news. Your credit report will soon be available for free once in a year.

Recently, the RBI Governor, Dr Raghuram Rajan, broke the news that CIBIL has planned to offer one report, along with the credit score, free every year. Dr Rajan told media that, “Going forward, by the end of the year, the Credit Information Bureau of India will start providing individuals with one free credit report a year, so that they can check their credit rating and petition if they see possible discrepancies.” RBI oversees credit bureaus including CIBIL, and all of them are governed by the Credit Information Companies (Regulation) Act, 2005.

 

The intent is: A free report may help create awareness among borrowers about their creditworthiness and may assist in improving their credit behaviour.

The primary assumption behind providing one report each year along with the credit score for free is intended to make a borrower cautious about their loan repayment habits including the payment of credit card credit card dues. Credit card users tend to miss the payment due date at least once. Many times it happens that, you delay settling the account hoping to enjoy the full credit period on your credit card. One fine day you realise, the due date has passed and now you will have to pay a hefty interest on your dues.Do you know, this negligence affects your credit score? A few people keep borrowing money just because the bank offers it to them, irrespective of whether they need it or don’t. They spend this borrowed money as if there’s no repayment on it. On the day, they are forced to borrow more to pay off older dues. This is a debt trap, and once you fall into it, chances to escape it are difficult. This affects your credit score.

If you start monitoring your credit scores, you would realise that your reluctance in repaying the loan or excess indebtedness affects your future prospects of getting loans faster. And you would become more particular about the repayment of your loans and overdrafts and would avoid applying for the excess credit.

PersonalFN has written on numerous occasions about why your credit score should matter to you and how to improve it. Here’re some of the articles that PersonalFN wrote in the past.

The Comprehensive Credit Report Guide

How Prudent Borrowing May Help Improve Your Credit Score

As a Borrower, Are You Careful About Your Credit Score?

Is Your Credit Score Healthy Enough?

Cheaper loans based on you credit history would soon be a reality

Why Having a Healthy Credit Score May Not Be Sufficient
 

Those who read these articles accessing the links above surely understand why a higher credit score should matter to them and why is it equally important to care as much about your creditworthiness as you do about wealth creation.
PersonalFN believes you should be careful while borrowing. Before you apply for the loan, you should always take into account the need and urgency for the loan. And of course, your repaying ability remains the most important consideration. PersonalFN discourages its readers and the investors from indulging in excess consumerism by opting for credit facilities. This is a sure way to enter a debt trap, and you should avoid it.

If you often find it difficult to manage your finances on your own, or you think you need some expert advice, PersonalFN has a lot to offer—right from investing in debt funds to financial planning solutions.
 

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rajatsingh1.monga@gmail.com Aug 04, 2016 Very informative article! I need to borrow funds and because of my bad credit score I am facing problems to get them. Should I consider other means of investment like Peer to peer lending?

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