CIBIL score is one of the foremost things that lenders check before approving your credit card or loan application. Credit Information Companies (CICs) calculate and generate credit scores based on your financial information, as provided by the banks and financial institutions on a monthly basis to the credit bureaus.
TransUnion CIBIL is one of the four leading CICs or credit bureaus that generate credit score for consumers across India. A CIBIL score of 750+ is considered good by the banks/NBFCs for approving new credit product applications of the consumer. It is important for consumers to keep a track of their credit score and ensure they are leading a financially healthy lifestyle. It is easy to Get Free CIBIL score online as there are many websites that offer credit scores for free.
But, to maintain a high credit score, one must follow healthy financial habits and in return keeps your credit score on track.
Below, we have discussed some factors that directly have impact on your credit score.
Top 6 Factors That Affect your CIBIL Score
1) Poor Credit Repayment History
Poor credit repayment history that consists of missed or delayed loan EMIs or credit card payments is one the vital factors to bring your CIBIL score down. Any default on loans and missed credit card bill payments, brings negative influence on your credit score. Check for Days Past Due (DPD) in your credit report and make sure there is no numeric mentioned. Which means you have not defaulted in any of your EMIs or credit card payments. However, if you have paid all your EMIs and credit card bills on time, your CIBIL score shall not be impacted.
2) High Credit Utilization Ratio
Higher Credit Utilization Ratio (CUR) over time might give a negative impression to the lenders and may negatively impact your credit report, as it indicates a gradual rise in debt burden. Credit utilization ratio is calculated by dividing your total outstanding amount with your credit limit. It is recommended to maintain your Credit Utilization Ratio below 30% and make timely payments of your credit card bill to keep your CUR low. A gradually decreasing CUR shows that your repayment burden is reducing which will eventually help to boost your CIBIL score.
3) Simultaneous Multiple credit applications
Whenever you apply for new credit products, such as credit cards, loans (personal loan, home loan, and auto loan). Your bank performs a hard inquiry on your CIBIL report to check your credit history and score. Multiple loan applications or credit card queries in a short span of time negatively affect your credit score. As this may depict your credit hungry behaviour, which in-turn reduces the chances of getting credit approvals from lenders. Simultaneous multiple loan applications indicates that your loan burden will further increase and it may become difficult for you to serve your future debt obligations.
4) Becoming a Loan Guarantor or Co-applicant
Acting as a co-applicant or guarantor for a someone else’s loan will not affect your credit score negatively. But if the borrower for whom you have given guarantee defaults or delays payments. Then your credit score will be impacted drastically along with the borrower’s CIBIL score. Therefore, you must think twice before becoming a co-applicant or a loan guarantor.
5) Not Maintaining the Right Credit Mix
High or increased percentage of unsecured credit, such as personal loan and credit card expenditure is another factor that may affect your CIBIL score negatively. For most of the banks, this is a sign of mismanagement of personal finances and they are suspicious in extending loan approval to such individuals. On the other hand. If you are availing more secured loans, your credit score tends to increase as they are secured with a security/collateral. There should be a right balance between availed unsecured and secured loans depicting that you are maintaining a right credit mix in your portfolio.
6) Not Checking CIBIL Report for Errors
It is recommended to keep a regular check on your CIBIL report for errors. And rectify them at the earliest, if any. The CIBIL report errors can be any mismatch of personal information,
- Incorrect account details
- Duplicate accounts
- Wrong outstanding balance
Any delayed or wrong information from lenders may reflect faulty information on your credit report and hence result in reduced CIBIL score. In case you find any error, you can raise a CIBIL dispute resolution and get it resolved.
Therefore, whenever you are planning to apply for a loan or credit card. It is always good to know regarding the key factors that can become a hindrance in credit approval. As a result in denial in your loan application. Following the above-mentioned tips diligently may definitely help you to maintain a credit score over the time. And become eligible for your desired credit products.
