A CIBIL score is a numerical representation of your ability to repay the credit. It is a three-digit number that falls in the range of 300-900. A score closer to 900 can get you better deals on credit cards and loans. Majority of lenders like banks and non-banking finance companies (NBFCs) prefer a CIBIL score of 750 and above.
Who Calculates your CIBIL score?
TransUnion CIBIL credit bureau calculates CIBIL scores after taking into consideration several factors including payment history, credit type, the age of the credit, and other factors.
Factors that Affect your CIBIL score?
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What are the Factors that affect Credit Score Negatively?
Listed below are some of the possible factors that affect credit scores negatively. If they are not resolved within time, they can create a never-ending loop that starts from a bad credit score, multiple loan application rejections, hard inquiries and again back to a bad credit score.
Irresponsible Payment History
Irresponsible credit repayment history is one of the factors that affect the credit score negatively. It showcases the inability and irresponsible behaviour of the borrower towards the payment of loan EMIs and credit amounts. And sometimes, it may even take years to improve/regain the credit score.
Solution- It is advised to pay off the debt on time. If in case, a borrower fails to manage the credit payments due to some genuine reason, he/she can connect with the concerned authorities to request a grace period.
High Credit Utilization Ratio
It is recommended to use only 30% out of the total credit amount. A borrower using more than the given percentage showcases his/her dependency on credit amount, which results in a declined credit score.
Solution- A borrower should manage to use the credit utilization ratio judiciously. In case of higher credit requirements, the borrower can connect with the concerned lender, bank or financial institution to grant a higher credit amount. However, the use of only 30% of the credit utilization ratio remains applicable on higher credit amounts too.
Unpaid Credit Amount
Delayed/missed/outstanding/partially-settled credit payments- all result in a lower credit score. Such payments are further reflected in the credit report and can hinder the process of loan or credit card approval.
Solution- It is a good idea to set reminders for loan EMIs and credit payment due dates. In case of an outstanding credit balance, the borrower can convert the outstanding amount into easy EMIs. This way, he can prevent himself from being overburdened. Also, if a borrower prefers to pay by cheque, he should ensure to deposit the cheque a few days before the due date.
You should always make sure to clear off your outstanding debts. When you have unpaid dues reflected on your credit report, it takes a toll on your score. It is advised to pay off the outstanding dues even if the amount is small.
Improve Credit Score?
Listed below are a few possible ways to improve credit score; however, it is important to note that these ways will not work like magic in a day. It takes time to improve or regain a good credit score.
- Make timely credit payments every month
- Do not leave any outstanding credit balance
- Maintain the right balance between secured and unsecured loan
- Make sure to use the credit utilization ratio judiciously
- Resolve the errors in the credit report
- Do not apply for a loan or credit card immediately after the rejection of an application
- Set up timely reminders for loan EMIs and credit card monthly payments
- Ensure not to leave any partially settled amount or minimum balance left
Benefits of Having a High CIBIL score
- Quicker approval for loans and credit cards
- Cheaper interest rates on loans
- Better deals on credit cards
- Credit cards with higher credit limit
- Discount on processing fee and other charges for loan applications