The CIBIL score essentially helps lenders decide whether or not you should be given a loan. Your CIBIL score depends on factors such as your previous credit behaviour, loan repayment history, debt-to-income ratio, the nature of your existing loans (secured or unsecured), and credit cards you have used in the past, among others. Continue reading to learn more about the factors that affect your CIBIL score on Finserv MARKETS.
We will now take a look at the various other factors that affect your CIBIL score.
Several factors influence your CIBIL or credit score and contribute to bringing down the number. However, here are the prime factors that are likely to impact your credit standing.
The age of your credit record generates a clear insight into your financial health. It essentially means that you have been in the credit system for a significant period, which allows the lender to better evaluate your credit management skills. On the other hand, it is not favourable for lenders to ascertain your repayment behaviour in the absence of an aged credit record. Lenders are likely to stir away from rendering funds in uncertain situations.
The credit repayment history provides a breakthrough into your ability to make credit repayments. It is also the most important component considered when evaluating your credit score. The repayment record reflects your ability to diligently meet your financial obligations through timely credit and EMI payments. When you default on any credit card dues or do not make your loan repayment within the stipulated time, it harms your credit health, leading to a significant drop in your credit score.
The credit utilization ratio reflects your hunger for credit. It is the ratio of your credit utilization to the total amount of credit limit available against your account. When you exceed your credit utilization ratio, your profile is negatively viewed by the credit bureaus. It essentially increases the probability of you defaulting on loan repayments. As a rule of thumb, limit your credit utilization to about 25-30% of the credit usage offered to you.
The credit score is also greatly influenced by the mix of credit accounts against your loan portfolio. A portfolio essentially includes the number of secured and unsecured credit lines against your name. As the name suggests, a secured loan is backed by collateral in the form of an asset. A non-secured loan is offered with the security of collateral. Effectively servicing a mix of loan EMIs and credit card dues proves your ability to manage the different kinds of available loan options. It further helps strengthen your credit history and makes your profile appear creditworthy.
The debt to income ratio is widely considered by financial institutions before approving your credit applications. It indicates the level of open credit accounts that you hold and a higher ratio shows that you are already overburdened by monthly EMIs. It is best to keep your spending in check with a debt to income ratio that lies in the range of 25% to 35%.
The way you manage your repayments has a big influence on your score. Make it a habit to pay your loans and credit bills on time as per the schedule. Even 30-day delinquency in making a repayment can reduce your score by a mighty 100 points. Set up reminders and alerts to ensure that you make your payments on time. Lenders view you as an irresponsible borrower when you miss repaying your credit.
Outstanding debt has a very negative effect on your credit report. Make sure that you immediately clear outstanding debt. Records of unpaid debt can heavily influence your score for the worse. Make sure that you repay big and small payments at the earliest.
If you continue to only pay the minimum amount due on your principal each month, then your debt trap increases. It also leads to an increase in compounding interest. Therefore, it is essential to pay your credit card bills on time and in full.
Each time you apply for a credit product, the lender pulls out your credit report. This action is also known as a hard inquiry. When you send out multiple applications, there are multiple hard enquiries recorded against your account. Not only will this affect your score, but also exhibit your hunger for credit. Take some time off before you apply for the next credit product, especially if your application is rejected at first.
Errors in the CIBIL report are a common occurrence. They can range from incorrect personal information to wrong balance inputs. These errors have a direct effect on your credit score and you must watch out for any discrepancies. Keep a track of your credit history and be quick to rectify errors.
A good CIBIL or credit score improves your loan eligibility chances. An exceptional score suggests that you are a responsible borrower who is disciplined with his/her finances. Lenders prefer individuals who handle their debt well and inturn present them with the best offerings on credit cards and loans.
The most notable benefit of having a high CIBIL score is that lenders offer you the best rate of interest on your loans. Having a good score also gives you an upper hand when negotiating the rate of interest levied on credit products.
A good CIBIL score will help you get the best credit cards with the most lucrative benefits. Lenders are likely to offer you high-value credit cards to choose from when your score is above 700.
Irrespective of whether you plan to apply for a credit card or loan at present, you must continue to maintain a good CIBIL score. A high score will be an asset in the future whenever you plan to apply for a home loan, personal loan, or even a credit card. Always prioritize good credit history.
Here are some great tips that are easy to follow and will help you maintain a healthy credit score:
Make timely bill and EMI repayments
Avoid defaulting on bill payments
Maintain a favourable credit utilization ratio
Do not deactivate old or unused credit cards
Avoid applying for several loans or credit cards within a short period
Maintain a mix of secured and unsecured loans
Review your credit report regularly and flag off any discrepancies
Avoid making multiple credit inquiries
Monitor your co-signed, guaranteed, and joint accounts monthly
A high CIBIL score works amazingly well in establishing your strong financial capability among lenders. Apart from portraying your profile as creditworthy, it also ensures that you get the best offers when applying for credit. While you must follow all the above-mentioned healthy credit habits, you can check your credit score at Finserv MARKETS. You can also obtain a detailed credit health report through the same one-stop shop to effectively track your financial health.
The CIBIL score is a 3-digit numeric summary that reflects your credit behaviour. The score ranges from 300 to 900 and the higher your score, the better is your CIBIL health. Maintaining a high CIBIL score will fetch you the best financial opportunities in the form of loans and credit cards.
The four major factors that affect the CIBIL score include a negative repayment history, high credit utilization, multiple hard inquiries, and high credit balance.
The CIBIL score is an important aspect of your financial health and directly impacts your loan application process. When you apply for a loan, the lender runs a check of your CIBIL report and score. It essentially works as a first impression for the lender, and the decision to lend is primarily based on this score. The lender will decide to review your application only if your CIBIL score is accepatble as it is the benchmark of your financial well-being.
No, CIBIL cannot alter your records. The CIBIL report is a compilation of records that are provided by banks and other financial institutions.
An NA score could mean that you do not have a credit history or have several credit cards with no credit exposure.