What Does a Zero or Negative Credit Score Mean?

A credit score or CIBIL score is an essential metric that lenders use to evaluate the risk of lending money or extending credit to individuals. Generally, the higher your CIBIL score, the better your creditworthiness is in the eyes of the lenders. But what does it mean when you get a zero CIBIL score or even a negative credit score? This article will explore what these scores mean, their impacts on loan applications, and how to build a good CIBIL score.

What is a credit score?

A credit score is a 3-digit numerical value that represents your creditworthiness, or how likely you are to repay a loan. Typically ranging from 300 to 900, the score is derived from credit history. This can include factors such as payment history, the number and types of credit accounts, how long these accounts have been open, and so on. A higher score can make lenders more likely to offer favourable terms such as lower interest rates, provided you meet the overall eligibility criteria as well. Understanding your credit score is crucial for managing your financial health.

What is a zero or negative credit score?

A zero CIBIL score indicates that your credit history is less than 6 months old. Thus, the credit bureau lacks sufficient information to assess the credit history and calculate a CIBIL score. This may happen if you have only recently taken a loan or applied for credit.

A negative credit score means that you do not have a credit history, there is nothing based on which CIBIL can assign you a score. This generally happens when you have never taken out any loan or applied for credit, or if there has been no credit activity in the last 2 years.

Difference between a CIBIL credit score of zero (0) and negative (-1)

A zero CIBIL score or NA indicates that an individual's credit history is less than 6 months old, and there is insufficient information for the bureau to calculate a score. This scenario typically means that there has been some credit activity but not enough to establish a credit score.

On the other hand, a score of negative (-1) or NH could mean that a person has never opened credit accounts or taken any loans, resulting in no credit profile at all, or there has been no credit activity for 2 consecutive years. In some cases, a negative credit score might also be a result of errors in your credit report. Therefore, it is important to check your credit report regularly and raise a dispute with the concerned credit bureau promptly to get it corrected.

Verifying your score if it’s zero or -1

If your credit score is zero or -1, it's important to verify this information to understand your credit standing fully. Start by obtaining your credit report from CIBIL or another credit bureau. If your score is zero, check for recent credit accounts or transactions. These might not be enough for a score yet, but they're a good starting point for building credit history.

For a -1 score, check if there are absolutely no credit transactions listed. Look for any errors or discrepancies in the report. These can potentially affect your score. If you find errors, dispute them with the credit bureau promptly to get your report corrected.

If you have a zero or negative score due to a limited history, consider responsible credit usage (like a secured credit card) to build a positive credit profile.

How to get personal loans with zero or negative scores

Securing a personal loan with a negative or zero CIBIL score, while challenging, is not impossible. Here are strategies to increase your chances of approval:

1. Choose smaller loan amounts: If your score is negative, apply for a small loan first. Repaying it on time can help build a good credit score and history.
2. Leverage existing relationships: Apply for loans at financial institutions where you have existing accounts. Your overall financial relationship may be considered over the CIBIL score to a certain extent.
3. Highlight other strengths: Search for lenders who are willing to assess your application based on other factors such as your income, employment history, and account balance stability. However, you may have to settle for higher interest rates.

How to build your CIBIL score from zero or negative

Building a CIBIL score from zero or negative starts with establishing a positive credit history. Here are some ways to do so:

1. Personal loans: Consider small loans, particularly from NBFCs, that report payments to credit bureaus.
2. Secured credit card: Obtain a secured credit card, make manageable purchases, and pay off the balance in full each month to demonstrate responsible credit management.
3. Pay later services: Use 'pay later' services for purchases and ensure payments are made on time to build a good payment history.
4. Authorised user: If available, become an authorised user on a family member’s credit card. Their positive payment history can help boost your score.
5. Limit credit inquiries: Avoid excessive credit applications in a short period to prevent multiple hard inquiries, which can negatively impact your score.
6. Regular credit checks: Monitor your credit report regularly and dispute any inaccuracies promptly to maintain a correct record.

How are credit scores calculated?

Different credit bureaus (TransUnion CIBIL, Experian, Equifax, and CRIF High Mark) may have different ways to calculate credit scores. Generally, the following major factors are considered: 

1. Payment history: Late payments or EMI defaults can significantly lower your score.
2. Credit mix: A balanced mix of secured and unsecured loans can show responsible management of different types of credit and boost your score.
3. Credit utilisation: Maxing out your credit cards or having high balances can negatively impact your score as they can signal a rising debt burden.
4. Multiple credit inquiries within a short time:  This can lead to hard inquiries on your credit report, which can slightly lower your score.

The weightage assigned to these factors can vary slightly between credit bureaus.

How to improve your CIBIL Score?

Timely payments: Make sure to pay your credit card bills and loan EMIs on time.

1. Credit utilisation: Keep your credit utilisation ratio below 30% of the available credit limits across all accounts to show responsible credit usage.
2. Manage new accounts wisely: Avoid opening several new credit accounts in a short period, as this can reduce your average account age and negatively affect your credit score.
3. Monitor credit reports: Regularly check your credit report for any inaccuracies or errors and swiftly dispute any discrepancies you discover.

Build credit history: For those with limited credit history, consider using secured credit cards or taking small credit-builder loans to begin building a positive credit record.

How to check your credit score online?

Checking your credit score online is straightforward and can often be done for free. Credit bureaus typically offer one free report per year, which includes your credit score. For more frequent monitoring, you can go for paid subscriptions. Additionally, various financial service websites and apps provide credit score checks as part of their services. It is essential to look for a reputable source such as TransUnion CIBIL.

To check your score, you'll need to provide some personal information, such as your name, address, date of birth, and PAN number. The process typically takes just a few minutes, and you’ll have immediate access to your credit score and insights into factors affecting your credit health.

Conclusion

Understanding and managing your credit score is crucial for financial health, especially when it comes to securing loans on favourable terms. Whether you're starting with a zero or negative credit score or looking to improve your CIBIL score, the key is to engage in responsible credit practices. Strategies like timely loan/credit card payments and limiting credit utilisation to 30% not only help improve your score but also maintain it. 

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