How to educate your children about CIBIL score? Here are 6 steps

Parents should share examples from their own lives about people they know who have had good or bad credit scores and how it affected them.

Children should be taught about responsible financial behaviour, which also includes the concepts relating to credit score, also known as CIBIL score.

While teaching children about money matters, you should emphasise the significance of paying bills on time, and importantly not taking more debt than you can afford.

As you discuss with them, you should tell them how having a good credit score can lead to lower interest rates and better financial opportunities, whereas a poor credit score can make it harder to procure loans or even rent an apartment.

Six steps to educate your children about CIBIL score:

1. Start with the basics: You should start by explaining what a credit score is and why it’s important. You can simplify it by saying that it’s like a report card for how well you manage your finances.

2. Use real-life examples: You should share examples from your own life or stories about people they know who have had good or bad credit scores and how it affected their ability to do things like buying a house or getting a loan.

3. Explain how credit scores are calculated: You should break down the factors that contribute to a credit score, such as payment history, credit utilisation, length of credit history, types of credit, and new credit inquiries.

4. Teach them to monitor their credit: Parents should show them how to check their credit report regularly and explain why it’s important to spot errors early.

5. Set a good example: Children tend to learn by observing their parents’ behaviour, so you should show responsible financial habits in your own life.

6. Encourage them to ask questions: You should be open to answering any questions they may have and provide them with resources, such as books or websites, where they can learn more if they’re interested.

This way, by taking a proactive approach to teaching your children about credit scores and financial responsibility, you can help set them up for a lifetime of financial success.

Frequently Asked Questions:

Does checking your credit report impact your credit score?

It does not impact your credit score. As a matter of fact, it is advisable to keep checking the score from time to time.

How can you improve the credit score?

You can work on improving your credit score by making timely payments, reducing outstanding debt, and maintaining a healthy credit utilisation ratio (CUR) before applying for a car loan.

How can you secure your personal information?

You can protect your personal and financial information by using strong passwords for online accounts, and you should avoid sharing sensitive details over unsecured networks or with unknown parties.

Should you keep checking your credit score from time to time?

Yes, it’s recommended to keep track of your credit score regularly to stay informed about your creditworthiness.

Do lenders take a call on granting a loan on the basis of CIBIL score?

Yes, banks generally use credit score as a key factor in determining whether to approve a loan application. A low credit score may result in denial of credit or approval with less favourable terms.