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Why Is My PAN Number Crucial in Financial Transactions, and How Can I Leverage Its Power?

PAN or Permanent Account Number is a unique ten-digit alphanumeric number assigned by the Income Tax Department to individuals or entities that pay taxes in India. PAN acts as a universal identification number and is a crucial element in financial transactions.

In this article, we will discuss why PAN number is crucial in financial transactions, its importance in maintaining a good CIBIL score and how one can leverage the power of their PAN.

Importance of PAN Number in Financial Transactions

The PAN number is a mandatory requirement for opening a bank account, applying for loans, filing income tax returns, and making high-value transactions. Without a PAN number, one cannot invest in stocks, mutual funds, or even open a Demat account.

Whether you are a salaried individual, a self-employed professional or a business owner, your PAN number serves as proof of your tax obligations and helps the authorities identify and track your financial transactions. It also helps in curbing tax evasion and money laundering activities.

Let’s take an example. Suppose you are applying for a personal loan or a credit card from a bank. The bank will ask you for a copy of your PAN card to verify your identity and income details. They will also run a credit check to assess your creditworthiness, which brings us to our next point.

PAN Number and CIBIL Score

Your CIBIL score is a three-digit number that ranges between 300 and 900, indicating your creditworthiness based on your credit history. A high credit score means you have a good credit history, and lenders are more likely to lend to you, whereas a low credit score means you have a poor credit history, and lenders may reject your loan application or give you a higher interest rate.

How does your PAN number impact your CIBIL score? When you apply for a loan or a credit card, your lender checks your CIBIL score to assess your creditworthiness. They also look at your credit report, which contains details about your credit history, outstanding loans, credit card usage, payment history, and more.

One crucial element in your credit history is your PAN number. The credit bureau uses your PAN number to track your credit history across all lenders and financial institutions. It helps them identify any discrepancies, errors, or frauds in your credit report. For example, if you have taken multiple loans or credit cards from different banks using different identities, the credit bureau may flag it as fraudulent activity since it cannot track your credit history accurately.

Similarly, if you have defaulted on a loan or missed a credit card payment, it will reflect in your credit report and impact your credit score negatively. Your PAN number helps the credit bureau identify such missed or late payments and include them in your credit report.

Therefore, it is crucial to maintain a good credit history, which involves paying your bills on time, not defaulting on loans, not applying for too many loans or credit cards simultaneously, and maintaining a healthy credit utilization ratio.

How to Leverage the Power of Your PAN Number?

Now that we understand the importance of PAN number in financial transactions and credit history, let’s look at how we can leverage its power to our advantage.

1. Check Your CIBIL Score For Free

The first step in leveraging your PAN number is to check your credit score for free. You can do this online by visiting the official CIBIL website or using their mobile app. All you need to do is enter your PAN number, personal details, and answer a few questions to verify your identity. You will get your credit score instantly, along with your credit report.

By checking your credit score regularly, you can track your creditworthiness and ensure that there are no errors or discrepancies in your credit report. You can also take steps to improve your credit score if it’s low, such as paying off your debts, disputing any errors in your credit report, and avoiding new loans or credit cards.

2. Monitor Your Credit Report Regularly

Apart from checking your credit score, you should also monitor your credit report regularly. Your credit report contains detailed information about your credit history, outstanding loans, credit card usage, and payment history. By monitoring your credit report, you can check for any errors, frauds, or discrepancies in your credit history and take corrective action.

For example, if you notice a loan or credit card account that you didn’t open or a payment that you didn’t make, you can report it as fraud and dispute it with the credit bureau. By doing so, you can protect your credit history and avoid any negative impact on your credit score.

3. Apply For Loans or Credit Cards Wisely

One of the most crucial aspects of leveraging your NSDL PAN Status is to apply for loans or credit cards wisely. Every time you apply for a loan or credit card, your lender checks your credit score and credit report, which may impact your credit score negatively if done frequently.

To avoid this, you should only apply for loans or credit cards when you need them and research the best options available. You should also ensure that you meet the eligibility criteria for the loan or credit card and that you can afford the EMIs or bills.

4. Maintain a Healthy Credit Utilization Ratio

Your credit utilization ratio is the amount of credit you use compared to your credit limit. For example, if you have a credit card with a limit of Rs. 50,000, and you use Rs. 25,000, your credit utilization ratio is 50%.

Maintaining a healthy credit utilization ratio is crucial for maintaining a good credit score. A high credit utilization ratio indicates that you are relying too much on credit, which may impact your ability to repay the debts. A low credit utilization ratio, on the other hand, indicates that you are using credit responsibly and can repay the debts without any issues.

As a general rule, you should aim to keep your credit utilization ratio below 30%. For example, if you have a credit card with a limit of Rs. 50,000, you should try to spend only Rs. 15,000 or less to maintain a healthy credit utilization ratio.

In conclusion, your PAN number is a crucial element in financial transactions and credit history. By leveraging its power, you can check your CIBIL score for free, monitor your credit report regularly, apply for loans or credit cards wisely, and maintain a healthy credit utilization ratio. By doing so, you can improve your creditworthiness and ensure that you have access to affordable credit when you need it.

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