The Credit Information Bureau India Ltd (CIBIL) is the number one credit rating agency in India which is authorized by the Reserve Bank of India (RBI). It assesses individuals’ financial data such as loan and credit card information to estimate the CIBIL score. The data is fed into an algorithm with 258 variables, each with a different weightage to accurately estimate the creditworthiness. The credit score of an individual plays a very important role when applying for a loan. Based on this score the lenders decide if you are likely to default on your debt obligations. The CIBIL score is a three-digit number between 300-900, the details of which are given in a Credit Information Report (CIR). It also offers its services to banks and Non-Banking Financial Companies or NBFCs.
The CIBIL score of an individual is determined between 300-900. A lower number indicates bad creditworthiness and puts you in the high-risk category. This means that banks or NBFCs may not readily offer loans. On the other hand, a higher number proves you have been fulfilling all your debt obligations on a consistent basis and you will face no difficulties when you apply for a loan.
A CIBIL score takes into account the following factors:
A record of your previous payments, precisely, if you have been consistently making payments on time, if you have any delayed payments, if so, how many? All this put a huge impact on your credit score calculation. If you have delayed payments recently, you have a lower probability of getting a loan.
Your past settlements, write-offs or any defaults if any. Recent or multiple write-offs may have a negative impact on your CIBIL score calculation. Any delays in repayments on secured loans have a larger impact than unsecured loans.
A low loan balance results in a higher score as it indicates low credit usage which is a good sign for your credit score calculation.
If you rely on credit cards to get through your daily expenses it may indicate negatively on your credit score. If you make frequent payments on your credit card outstandings this shows you are a low-risk candidate and companies will happily provide you loans.
Multiple loan inquiries lead to credit hungry behavior. This will have a negative impact on your credit score calculation.
Although all the above have an impact on your CIBIL score calculation, some are more significant than others:
Payment History - This by far has the highest impact on your Credit Score. About 30% of it is taken into account while calculating your score.
Credit Exposure - 25% of it is taken into account. Credit exposure includes how much debt has been taken in the past.
Credit Type and Duration - About 25% of this is taken into calculations.
Other factors - This makes up 25% of the total factors which can include any miscellaneous reasons which can affect your ability to pay debt in the future.
You can check your cibil score by visiting the Finserv MARKETS website and get your Finserv MARKETS Financial Health Check Report. One of the major benefits of checking your score on Finserv MARKETS is that it will not have a negative impact as this is a soft inquiry.
Keep an eye on your credit utilization ratio which measures your credit usage against credit limits. This means that if you purchase goods upto your credit card limit, month after month it may not be a good sign.
You may think about canceling your old credit cards, but think again if you plan on applying for a loan. If you have been consistently making your payments on all your previous credit card bills, it acts as a good evidence for increasing your credit score.
Check your CIBIL score report regularly so that there are no errors in your credit score calculations.
It is not advisable to take multiple loans at the same time. This reflects badly on your credit score ratings.
Now that there are various options to seek credit, you must do thorough research before choosing a loan provider. You must check your eligibility for each loan that will maximize your chances of approval. In case your application is rejected for any loan requirement, it will reflect poorly on your credit information report.
It is always important to maintain a good credit score at all times. With a good credit score you can also apply for an Instant Bajaj Finserv Loan available on Finserv MARKETS which comes at affordable interest rates and many features.
Ever considered quantifying your financial health in specific parameters? With the Financial Health Check Report (FHCR) on Finserv MARKETS.