Introduction
Creditworthiness is a crucial factor for banks and financial institutions when you apply for a loan. When giving a loan, banks or financial institutes always have a risk present of default, and they check credit scores by PAN card to identify your repayment capacity.
Creditworthiness essentially signifies your capability to repay the loan to the creditor on time. A higher credit score not only boosts the likelihood of loan approval but also enhances the terms you're offered.
In India, several financial institutions provide insights into your credit score, enabling you to gauge your financial credibility. This blog delves into the dynamic link between your PAN card and credit score. For more guidance on managing your credit health, explore Shriram Finance's array of services.
What is a PAN Card?
PAN stands for Permanent Account Number. A PAN card is a legal document from the Government of India which also acts as your identity proof. It serves as a unique alphanumeric identifier that is used primarily for financial and taxation purposes. The PAN card contains important information about the cardholder, which includes their name, date of birth, photograph, and a unique PAN number. It is used to track your financial details, including your credit score and prevents tax evasion.
Effects of PAN Card on Credit Score
Typically, there is no impact of a PAN card on credit score. So you can make the changes required on the PAN card details if needed. Changes could be revision of date of birth, financial transactions, permanent address or any other details.
There are some benefits of linking your PAN card to your CIBIL™ account, such as:
- Linking your PAN card number with your CIBIL™ account prevents inaccuracies in the credit report by establishing uniqueness and preventing overlaps. When you connect your PAN card to your CIBIL™ account, it ensures that your account remains unique and eliminates the possibility of any overlapping data. The association helps to maintain accurate and reliable credit information.
- A PAN card is mandatory when you log in to credit bureaus' official websites, as it verifies your identity.
- Even if you request a new/duplicate PAN card due to lost or stolen of the existing credit card, it does not impact your credit score because the PAN number remains the same.
- Issuing a new PAN card can, in certain cases, affect your credit score. As your credit score relies on your credit history associated with your PAN card, submitting a new PAN application might result in a negative entry in the CIBIL™ database.
Role of a PAN Card in Credit Reporting
1. Unique Identification
A PAN card stands for Permanent Account Number, a unique identity for you in the financial world. When you apply for a loan, the PAN number makes you unique from other applicants.
2. Assists in CIBIL™ Reporting
Credit Bureaus gather and maintain information about individuals from other credit bureaus, banks, and financial institutions. The PAN card plays a crucial role in the process as it picks all the financial products, including loans, credit cards and repayments, in a single place. This way, the loan providers can make better decisions while lending to you.
3. Prevents Identity Fraud
PAN cards act as your guardians against identity fraud. When you use your PAN card for transactions, banks and financial institutions carefully compare each of your details against their databases. This verification enhances transparency and security, significantly lowering the chances of unauthorised credit applications and fraudulent identity misuse.
4. Accurate Information
Accurate data reporting plays a vital role in maintaining a good credit score. Adding your PAN card details simplifies the process for credit bureaus to validate the accuracy of the credit information you provide. It ensures the right pieces fit into your credit puzzle.
5. Determining Credit Score
A credit score is a three-digit numerical representation of your creditworthiness, ranging from 300 to 900. The higher the credit score, the better your chances of getting the loan approved and getting better deals on the loans. Many factors influence creditworthiness, including payment history, credit mix, credit utilisation, and hard inquiries. PAN card ensures that this information is correctly reported, which makes the credit score calculation more accurate.
6. Verifies Payment History
Your credit score depends on how you effectively repay your existing dues. Including your PAN card number aids credit bureaus in monitoring your payment history across all credit accounts. Doing so ensures that your responsible repayment behaviour contributes positively to your creditworthiness.
Ways to Improve Your Credit Score
1. Don't Miss Any Payments
If you miss to pay any due amount, it may lower your credit score significantly. Hence, it is essential to make the payments on time, and if by chance you miss repaying any dues for any reason, you must talk to the credit provider and get this mark removed. Moreover, to avoid late payments, you must set up an auto debit feature with your credit card so you can make all payments on time.
2. Avoid Multiple Loan Applications
You must avoid taking multiple loans, be it a personal loan or credit card because whenever you apply for a new loan, the lender makes a hard inquiry on your credit report, which may lead to a lowering of a few points from your credit score. Moreover, applying for many credit cards immediately shows a negative image in front of lenders. That's why improving your credit score before applying for another loan is essential.
3. Get a Credit Builder Card
A credit card can also help you in building your credit score. Lenders or financial institutions check your previous credit history before deciding if you are a trusted person because the lender always has a risk of default on the payment. But if you never had a credit card or taken a loan, you will not have a credit history and hence no credit score. That is why applying for a credit card and building some credit history is a good idea that makes you financially responsible and teaches you how to manage your finances.
The Bottom Line
The PAN card impacts your credit score since it is a unique identifier and facilitator of accurate credit reporting. While not directly influencing the score itself, the PAN card streamlines credit bureaus accessing a comprehensive financial snapshot, allowing lenders to make well-informed lending decisions. Its verification processes also boost security, minimising the risk of identity fraud and contributing to a more transparent credit landscape.
Discover the true potential of your PAN card playing a catalyst for your credit success, and let Shriram Finance stand by your side with a wide range of financial services.
Frequently Asked Questions (FAQs)
1. Is credit score linked with PAN card?
Yes, your PAN card is typically linked with your credit score as it is an essential factor in monitoring your credit activities, which gives a more accurate credit report.
2. How can I increase my PAN card credit score?
You can improve your credit habits, such as repaying dues on time, less credit utilisation and a diverse credit mix to have a healthier credit score.
3. Can credit scores be checked without a PAN card?
Typically, your credit score is linked to your PAN card, while some platforms may show you an approximate score without a PAN card.
4. How to increase your credit score from 600 to 750?
You must repay your dues on time, reduce debt, manage credit utilisation and have consistent financial behaviour.
5. Can I rebuild my credit score?
Credit scores can be rebuilt by following good credit practices, including repayment of dues on time and having responsible financial behaviour. Your credit score can improve.
Key Highlights
- Your credit score and PAN card have an integral connection.
- Banks and financial institutions check your credit score before giving you a loan.
- You can improve your credit score by repaying your dues on time or opting for a credit builder card.
- Applying for a credit card and repaying the dues on time makes you financially responsible.
