Despite the increasing importance of understanding and having a decent credit score in today’s banking and financial business, a large number of individuals still have no credit score. They avoid loans and credit cards and, as a result, have no credit history as well as no credit history check on which a score might be based.
If you are among these individuals, you should be aware of the disadvantages of having no credit score and how to establish one.
In the recent past few years or so, many lenders have implemented risk-based pricing as a technique for determining the interest rates charged to loan applicants, resulting in higher interest rates. Lenders attempt to attract applicants with greater credit scores by offering them lower interest rates. This is done because candidates with good credit scores provide a smaller credit risk on average. On the other hand, lenders tend to charge substantially higher interest rates to compensate for the involvement of greater credit risk associated with lending to applicants with low credit scores or those who lack a credit score due to a lack of credit history. Due to the absence of a credit history check, lending to these borrowers carries a greater risk, as there is no online CIBIL credit score available.
It is vital to keep in mind that, just as the credit scoring procedure varies between agencies and so will your steps for improving your credit score, the risk-based rate setting strategy might also vary from lender to lender when you are searching for a loan. Therefore, prior to committing to a single lender, an applicant should properly compare the interest rates offered by as many lenders as possible.
Reduced loan eligibility: Whenever you go to apply for a loan, your credit score is one of the first factors that lenders check. This enables the lender to assess your credibility as well as your repayment history. Applicants with a good CIBIL credit score have a greater likelihood of getting their loan request granted. This is due to the fact that applicants with strong credit ratings are viewed as having the higher financial discipline and, thus, have a lower risk of failing on their loan repayments.
In contrast, persons who are either uninformed of how to increase their credit score or have a zero credit score since they lack a credit history check often have a lower likelihood of obtaining a loan than those with strong credit ratings. This is due to the fact that individuals who do not have a credit score and/or did not conduct a credit score check online are likely to be associated with a higher degree of credit risk since they lack a credit history, which lenders could have used to evaluate the credit repayment history and behaviour of individuals.
There is no evidence of a pre-approved credit card or loan. – Numerous lenders and online financial markets make available pre-approved offers for a loan as well as a credit cards to individuals with higher credit scores. These pre-approved deals may have enhanced product attributes, a cheaper interest rate, decreased processing costs, and a quicker processing time. Hence, possessing such pre-approved offers can indeed assist you in gaining a reasonable understanding of your eligibility and the cost of obtaining credit. This could be advantageous when negotiating with some other financial institutions in order to secure the borrower better loan and credit card terms.
Possessing a decreased possibility of credit card approval-
In addition to providing a source of quick credit, credit cards can provide a range of other benefits, like discounts, cashback, reward points, and interest-free instalment payments, among others. However, just as with loans, even credit card issuers use the applicant’s CIBIL credit score when determining whether or not to provide the card. Consequently, those without credit history or credit score have a reduced possibility of getting their credit card application approved. Similarly, persons with a low credit score must know how to raise their credit score and, consequently, their credit approval possibilities.
How can one create a strong credit history and, subsequently, a good credit score?
Those without a credit history check are certainly required to take some crucial steps towards building a solid credit history and, ultimately, a good credit score because the importance of CIBIL credit score continues to grow and play an increasingly diverse set of roles in our daily financial lives. They can achieve this objective by applying for credit cards and establishing a responsible pattern of use and repayment with these cards. If the entire balance of a credit card payment is paid in full by the due date, the card issuer will not impose interest on the transaction.
Those who are unable to obtain regular credit cards for a variety of reasons have the option of obtaining secured credit cards to establish or even improve their credit score. These secured forms of cards tend to get issued against the bank FD which is submitted as collateral, but they have the same features and benefits as their standard equivalents. The sole distinction is that these cards were given in exchange for a fixed deposit. As with regular credit cards, transactions done using secured credit cards are reported to the credit bureaus.
Now that you are aware of the significance of credit history and score, it is equally important to stay away from some common credit score-related myths that can harm your financial life. These myths include-Loan that credit card applicants are the only ones who need to monitor existing credit scores, closing old credit cards can boost your score, the absence of a credit history check is good for financial health, and guaranteeing or co-signing loan agreements does not affect credit scores.
Last but not least, remember that not believing hearsay and these myths can indeed save you from harming your credit profile, both knowingly and even unknowingly. It is best to understand the concept of credit score from the bureaus’ websites, financial, educational portals and professional financial advisors.