Are credit scores really important?

Although India was one of the richest countries in the world with a wealth of knowledge, precious stones and metals, it slowly opened up to the concept of credit scores and their importance quite late. Now, if a person were to apply for any form of credit – card, loan or overdraft, they will have to face the test of credit scores before they can proceed. There are very few banks which do not consider credit scores before they approve a person’s application. So, it is safe to say that the next time you think about a debt application, you should also be concerned about where you stand with your credit rating.

In India, there are a few private companies that collect details of a person’s credit history and maintain a credit report. But the most important player in this field is CIBIL. It works as per the RBI’s norms and has a huge responsibility towards the individuals whose financial history they keep a track of and to the institutions who rely on their information to lend their money to the applicants.

Where there is money involved, there are many people who try to take advantage of adverse situations and make a profit for themselves by exploiting others or outright duping them. There have been cases reported to CIBIL and other financial watchdogs of some large, private banks which falsely promise people to extend loans without a credit score and later charge exorbitant fees to extend such a loan. There are two problems to this:

1. You submit all the documents required along with the application to a DSA (direct selling agent associated with multiple banks to assist clients in their loan applications) and the bank then scrutinizes it and rejects your application anyway. Suddenly you wonder why there are so many enquiries made on your behalf with banks. Your confidential information may be falsely used by DSAs or one of your own staff/acquaintance and in addition to not getting a loan, you may become a victim of fraud.
2. Every time a bank makes an enquiry with CIBIL about your credit history, it is known as a hard enquiry. If there are too many such enquiries, your credit score gets negatively impacted and becomes lower than what it was before.

The other interesting thing that one faces in such situations is when their low credit scores or poor financial track record gets passed on to the so-called “debt doctors” who immediately start making marketing calls and try to lure you with the hope of improving your credit scores in an astonishingly low amount of time for very high fees. Prices can range between INR 8,000 to INR 16,000 and you are offered various schemes named silver, gold and platinum. You should, however, stay away from those which have tie-ups with banks and earn a profit out of and be helping them recover an inflated amount of settlement monies and out of you by charging you false, high fees for practically no good service provided.

But, there are certainly some credit score improvement consulting agencies that make genuine and expert efforts to help you regain a good financial standing and in a position to get approved for loans and credit cards in future. But the best solution is to nip the problem in the bud and always maintain a good credit history.