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written by | March 29, 2022

What are the Factors Affecting Your CIBIL Score?

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The CIBIL score is determined by the amount of available credit and the length of time the borrower has used credit. This improves the borrower's credit history. As a result, people should avoid using credit for an extended time.

The CIBIL score is determined by the number of loans taken out and the debt owed. The same is an essential factor in obtaining credit products such as loans and credit cards. Lenders, such as banks and other financial institutions, consider your credit score and other factors such as your income, age, and job stability, among others.

Maintaining a high CIBIL score is critical for any loan application, including home loans and personal loans. Your credit history can mean the difference between loan approval and loan denial. It's also a good idea to keep your credit score low to avoid having to apply for a loan or credit card. Bad credit history can lead to a bad credit score, so make sure to keep a good credit score.

Continue reading to learn about the significant factors affecting the CIBIL score.

Did you know?

Your credit score does have a significant influence on your finances.

What is a CIBIL Score?

CIBIL is an acronym that stands for Credit Information Bureau (India) Limited. An individual's CIBIL score is a numerical indication of their capacity to repay debts. A three-digit number that falls between 300 and 900 represents the number. Credit cards and loans might be more advantageous if your score is closer to 900. Lenders like banks and non-banking financing firms (NBFCs) favour borrowers with CIBIL score limit of 700-750 or above on CIBIL.

Who Generally Calculates the CIBIL Score?

Payment history, credit type, age of credit, and other criteria are all included when calculating CIBIL scores by the TransUnion CIBIL credit bureau. CIBIL scores are calculated after taking various factors affecting credit score, including payment history, credit type, age of credit, and other considerations.

Critical Factors Affecting CIBIL Score

It is composed of four major components, which are as follows: As an example, CIBIL score depends on the following significant factors:

Irresponsible Payment History

Your payment history has the most significant impact on your credit score. The timely payment of your credit card bills and loan EMIs is critical to your financial health.

A 30-day delinquent might result in a 100 points reduction on your credit score, according to a CIBIL study. Setting up reminders and notifications is recommended if you have numerous credit cards and loans to prevent missing payments or postponing payments.

Late or missing payments harm your credit score and signal that you are not dependable regarding repaying financial obligations.

A Ratio Over High-Credit Utilisation

One of the golden rules you should follow is to keep an eye on your credit utilisation ratio at all times. The amount of credit utilised about the amount of credit available to you is the credit utilisation ratio. According to industry experts, aim to use no more than 30% of your available credit limit.

Suppose your credit card limit is ₹1.5 lakh, and you want to spend around ₹85,000 on your purchase. You may see a decrease in your credit score if you have utilised more than 50% of your credit limit. As it shows that you are at a greater risk of failing, lenders will see you as having a high credit exposure as a warning sign.

The Issue Over Outstanding Debts

You should always make it a point to pay off any due obligations that you may be owing. You will see a decrease in your credit score value when you have overdue debts on your credit report. Although the amount owed may be minor, it is recommended that you pay off your debts.

The minimum amount due is a small part of the primary balance due each month. If you consistently pay just the bare minimum amount owing, you may find yourself trapped in a debt trap. When you roll over debt by paying just the bare minimum, the interest on your existing balance continues to accrue on top of your principal. Paying your credit card bills in full is thus recommended. It also displays a lack of responsibility when it comes to repaying.

Paying a Minimum Due Amount

A credit score is crucial because it allows lenders to determine your creditworthiness when you apply for a loan or a credit card. Lenders will retrieve your credit report to determine your creditworthiness.

A hard inquiry is a term used to describe this. If you submit numerous applications simultaneously, multiple credit queries will likely be made at around the same time. It is claimed that you have had complicated questions, which badly impacts your credit report. If you have recently had a loan or credit card application denied, you do not recommend applying for credit again almost immediately. Somewhat of reapplying, it is preferable to enhance your CIBIL score.

Credit Report Errors

Your credit report contains a thorough record of your current and historical credit accounts. If there are any errors in your credit report, you should contact your credit bureau. Your score may be lowered if there are any mistakes in your information. It is thus necessary to rectify any inconsistencies in your report as soon as possible.

Your lenders are the only ones who can correct these mistakes. In the absence of lenders submitting the necessary adjustments, CIBIL does not alter records. A credit report check may also assist you in determining whether you have been the victim of identity theft.

Not Maintaining a Balanced Credit Mix

Keeping a healthy mix of secured and unsecured debt is critical. Unsecured loans, such as home mortgages and vehicle loans, are distinguished from secured loans, including credit cards. Your credit score might be negatively impacted if you have a large amount of just one sort of credit.

A healthy credit mix of various forms of loans also implies that you have expertise dealing with multiple types of loans, which is a good thing. Banks and other lending institutions find this attractive.

Credit History Length

The length of your credit history is defined as the total number of years that have elapsed since you initially established a credit account. If you have a lengthy credit history, it might assist lenders in making an educated judgement when extending loans to you. 

If you concentrate on creating a credit history in your younger years, you will have a solid track record of credit transactions by the time you apply for a house or auto loan later on.

Closed or Discontinued Credit Card Accounts

Credit cards are a fantastic instrument for building credit history and should be closed whenever possible. You will, however, lose any credit history that was linked with your former accounts if you shut them. Consequently, if you have had your card for a significant time, it is recommended that you continue to use it as long as possible, if at all possible. Consider the possibility of closing a card that is just a few months old.

Several Benefits of an Excellent CIBIL Score

 There are several advantages to having an excellent credit rating (CIBIL score).

  • Loans and credit cards are approved in less time
  • Interest rates on loans are being reduced
  • Credit cards with better offers
  • Higher credit limit credit cards are available
  • Reduced processing fees and other fees for loan applications are available

Keeping track of your CIBIL score is crucial. To have greater access to credit products, ensure your credit score is higher than 700-750. The credit bureau CIBIL is required to provide you with one free full credit report each calendar year.

Conclusion

The CIBIL score is important for any loan application, including home loans and personal loans. Credit history determines whether a loan will be approved or denied. You might benefit more from credit cards and loans if your score is above 900. Most lenders like banks and non-banking finance companies (NBFCs) prefer borrowers with minimum CIBIL scores of 700-750. Keeping track of your CIBIL score is important. Make sure your credit score is between 700 and 750 or above in order to have greater access to credit products. You are entitled to one free full credit report each year from CIBIL.
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FAQs

Q: Can CIBIL alter my records?

Ans:

CIBIL reports are public. If you have missed a payment, you can have it altered. However, you must know that it takes a month to update the records. If you have missed several payments, you may have to wait longer. If you have missed a payment, the documents will not be changed. The best option is to contact the creditor or lender directly. The company may give you an extension or settle the debt.

Q: What affects CIBIL score and my loan applications?

Ans:

Your CIBIL score indicates how likely you are to be approved for a loan. CIBIL score limit is typically a three-digit number that ranges from 300 to 900. A higher score is better because a lender is more likely to approve you to have access to more funds and a higher loan limit. Having a good score also means that you will be able to get the best car insurance rate possible, meaning that you will end up paying less than someone with a low credit score.

Q: What are the factors that negatively affect the CIBIL score?

Ans:

TransUnion, a credit reporting agency, assigns you a CIBIL score. The number is based on various criteria, and the most crucial factor affecting the CIBIL score is the borrower's credit history. 100 points might be taken away from your score if you are late for 30 days. As a result, you must pay all bills on time. A reminder system for all credit cards and loans is also recommended. If you miss a payment, your credit rating will suffer. The more delinquent accounts you have, the worse your credit rating will be.

Q: What is a CIBIL score? What affects the CIBIL score?

Ans:

A CIBIL score is a 3-digit number representing a person's creditworthiness. A higher credit score increases a person's borrowing power, allowing them to access pre-approved loans. A good CIBIL score also makes it easier to get approved for rental apartments and houses and help a person get the best car insurance rate. People with a good CIBIL rating pay less for car insurance than people with low scores.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.