What is the Credit Score?
Credit Score is the brief of individual Credit files in numeric form. It helps credit providers (like banks, credit card companies or other potential creditors) to get to know about borrowers creditworthiness. The higher credit score may lead to borrower paying less interest rate and getting more credit opportunities.
The credit score is reflected in the individual’s Credit report, which is prepared by the main credit bureaus (Transunion, Experian, Equifax, CRIF). Credit Score increases or decreases depending on how borrower maintain his credit account.If they are not paying their dues on time and applying for many hard inquiries in a short period of time than it will affect the credit score negatively, and credit score surely will drop. But on the other hand, if the person is maintaining his credit account wisely, with good payment history and no or less hard inquires than their Cibil score will rise. Below table shows the range of credit score:-
|CIBIL Score Range
|What it shows
|History not available(NA)
What if Individual Credit Score Reflects Zero in Credit Report?
When an individual credit account track is of less than 6 months than his credit score will reflect Zero (0) because the credit reporting agency does not have sufficient amount of information to make the decision about the individual credit account and assign them any credit score.
Having zero credit score is not bad, the borrower can still apply and get the loans or credit card from any banks or NBFC, it just limits the opportunities for the borrower of getting the best offers in loans and credit cards with a better rate of interest, as compared to the borrower having good credit score history, because the lenders do not get the clear picture of borrower’s financial credibility.
Higher the credit score higher are the chances for the borrower of getting better loan terms in a better rate of interest.
Difference Between Credit Score 0 and -1
Credit score zero (NA-History not Available) indicated that the individual credit history is only available for less than 6 months and the credit reporting agency does not have enough information to make any decision on their credit account.
Whereas Credit score -1 (NH-No History) shows that individually does not have any credit account, i.e they have not taken any loan or credit till date from which they can develop their credit profile. It takes a minimum of 6 months of credit history to calculate the credit score.
And If there is no credit activity or repayment activity within 2 years in individuals credit account then also the CIBIL Score will reflect -1.
How to Get Loan if Credit Score is Zero (0)?
- Firstly the borrower should search for the banks or potential lenders those are ready to be open for accepting non-traditional credit histories like rent, utility bills etc. And focuses more on other factors like borrower employment history and their income, consistency in their bank account balances etc.
- The borrower should apply for Secured Loans/Small loans like a secured credit card, gold loan, joint loan or auto loan, and repay their full loan amount on a timely basis before the due date, this help to build their credit score.
- One of the options is that you can convince someone (who have good credit score and repayment history) to consign on loan with you. In this, the co-signer has to promise to the bank or from where you are applying for credit, that they will pay the whole amount if you fail to repay it. But if the borrower fails to repay the amount on time then it will negatively affect his and the co-signer credit score.
- The individual can take a collateral-based loan. The borrower can take a loan against their self-own assets by giving their consent, in this type of loans borrower can get a good amount of loan with less interest rate(as it removes the possible risk related to loan amount such as getting repaid on time) based on the value of their assets such as gold, real estate, FD, vehicle etc, As collateral act as a guarantee for your financial capability of repaying the loan, If the person fails to repay the loan then the lenders can acquire or sale of the valuables.
- Become an authorised user of some other individual’s credit card. By this, his credit activities and credit history will be considered as your credit activities and based on that you can get a personal loan. But keep that in mind that you should maintain your payment track nicely without any error as your any wrong move can affect other individual credit scores negatively.
Point Which Bank/NBFCs Keep in Mind While Checking Eligibility of Zero Credit Score Borrowers Against Their Credit Request
Credit Score ‘ 0 ’ means there is no credit account history of the borrower due to available credit track less than Six month. So since the lenders cannot depend on a credit report for lending the credit request of the borrower, the lender needs to check some details of the customer on the basis of which they will decide whether the borrower is high, medium or low-risk customer and he will be able to repay them back on time or not. Below are some of the factors that bank or NBFC check before lending the credit request by the borrower having 0 credit score.
Balance in Saving Account:- Bank review whether the customer is maintaining decent balance amount (more than minimum balance) in his bank saving account, as maintaining the decent balance indicates the individual have stable finances position. and if there is consistent low balance than it indicates that individually does not have financial stability, and the risk goes higher of not getting repaid if the bank provides any credit to them.
Income Proof:- Bank/NBFC checks whether the borrower has stable income or his income is not stable from which they can judge the risk level of the borrower of not repaying the credit amount.
Higher the income higher the chance of getting a good loan amount with a better rate of interest.
No Cheque Bounce:- One of the main reasons for bouncing of cheque is when the individual does not have sufficient balance in their bank account. This impact negatively on your credit score.
Type of Residence:- Bank/NBFC checks the residential status of the borrower whether he is rented or have their own house. This helps the lender to eliminate the risk factor of coming across a fraud as there is more risk in a rented house profile as compared to their own house profile.
Job Profile:- Bank/NBFC evaluate the eligibility of the borrower by reviewing their job profile which includes the company where they are working (in which category that is falling as per their company norm- basically categorise as Super A, Cat A, Cat B, CAT C and so on) the stability of the borrower in his company, the income stability, based on which bank decide whether they have to provide the loan to the borrower and if yes then how much loan amount they can provide at what interest rate.