iDentistry The Journal identistry_may_aug2019 | Page 35

The Journal
is not a credit card at all; instead, it simply gives
us card–based access to our own bank savings
or current account. A debit card gives us the
convenience of not needing to carry cash as
well, but we must be mindful that when used our
purchases are being deducted directly from our
existing account and once the account is empty,
the card has no purchasing power until we
make another deposit. How we use credit says
a great deal about our style of money
management. If we would like to learn ways to
reduce our dependence on credit, pay down
current debts and save or invest that money
instead, that would be best for us always. Tax
treatment of interest unlike the interest paid on
most home loans etc., the interest paid on credit
cards is not deductible from our taxable income.
So, think and choose wisely.
CREDIT SCORE
I have been writing credit rating or the credit
score or the CIBIL rating numerous times, but
what exactly is this CIBIL (Credit Information
Bureau [India] Limited) score?
Let us deliberate over this briefly.
CIBIL Transunion Score is a 3 digit number
which represents our credit history. This score is
calculated on the basis of our credit report
which contains our credit history. The CIBIL
score ranges between 300 and 900. High score
implies a good credit history.So, closer the
score to 900 better it is. If we have score closer
to 300, there are high chances that our credit
card application will be rejected. CIBIL Score is
important because it is the most important
factor that is used by credit institutions to check
our credit worthiness when we apply for a loan.
When we have a high credit score, it is easier to
get loan approvals as it indicates our credit
worthiness to the lender.If we have a high credit
score, the lender will consider lending us safe
and our loan application will be accepted after
evaluating our repayment capabilities but if we
have a low credit score, our loan application will
be rejected outrightly even if we have the
repaying capabilities. It also helps to avail loan
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at a lower rate of interest especially in cases of
personal loan where the interest rate on loan
varies over a wide range. It makes sure as well
that there is a fast disbursal of loan as well.
So, how is the CIBIL score calculated?
The basis of calculation of CIBIL score is our
credit history. The credit bureau collates all the
information about us in one report to calculate
our CIBIL Transunion score. It is calculated on
the basis of our account and enquiry section in
our credit report. There are many other factors
that are considered in calculating our credit
score like the Credit history; which carries the
highest weightage especially past debt
obligation which has a weightage of 30% in our
credit score calculation. It also takes into
account the credit mix and duration i.e. what
percentage of our credit portfolio consists of
secured loan and unsecured loan along with the
duration of the loan will contribute another 25%
of our credit score plus the credit exposure i.e.
the total amount of credit that we have
outstanding will decide the 25% of our credit
score. Other factors which are to taken into
account are credit utilization, recent credit
behavior which contributes the rest 20% of our
credit score. There are a host of other factors as
well which include delayed payments and
defaults in the recent past (couple of years),
high utilization percentage, higher percentage
of unsecured loans and lastly, high number of
credit applications. Any defaults or late impact
the credit score negatively as it gives a negative
impression about our credit worthiness.
Utilization percentage is the ratio of our total
outstanding loan to our credit limit. If we repay
our debt timely and our outstanding loan and
credit card balance is going down, our utilization
percentage will also go down. This is taken
positively by our credit bureau. But if our current
balance on our credit card or loan is increasing
over time, it indicates that our repayment
burden is increasing again impacting our credit
score negatively. Higher percentage of secured
loans such as home loan or car loan in our loan
Vol. 15
No. 2
May-Aug 2019