When you apply for a credit card or a loan, the lenders usually determine your eligibility based on your credit score or the CIBIL score. Read on to know more about the various factors that affect the score.
If you are discussing your personal finance or if you are thinking about applying for a loan or a credit card, you would inevitably talk about CIBIL (Credit Information Bureau India Limited) score. But do you know what it is?
What is CIBIL score?
CIBIL score is a three-digit number that reflects your creditworthiness and your ability to repay the credit. It falls in the range of 300 to 900 and higher the score, the better is your creditworthiness. If your score is higher than 700, you can get attractive deals on loans and credit cards. This means you can get a housing loan at a competitive interest rate and get higher limits on your credit cards.
What are the factors that affect the CIBIL score?
Credit repayment history
One of the most significant factors that influence the CIBIL score is credit repayment history. It is paramount that you pay our credit card bills, and loan EMIs on time consistently. As per the CIBIL mandate, delaying the payment of the bills by 30 days can reduce your score by 100 points. If you use multiple credit cards as well as have availed a loan, you must set up alerts and reminders to avoid missing the repayment schedule. Even a single missed payment can hurt your CIBIL score and reflect your inconsistency in repaying the bills and dues.
Credit utilisation ratio
The credit utilisation ratio is the amount of credit you use in proportion to the maximum credit limit that is available to you. If you want to maintain a positive CIBIL score, you must remember the rule of thumb – you must not use more than 30% of the credit limit. Let us understand this with an example. If you have a credit card with a maximum credit limit of one lakhs INR, you can spend up to 30,000 INR. However, if you exceed the spend, it may hurt your credit score. Having a high credit exposure will indicate that you are at a higher risk of defaulting to the lenders.
If you have any dues like credit card bills or loans, it will reflect in your monthly credit report. And, if the dues are long pending, it will have a negative impact on the overall credit score. So, to improve your CIBIL score and credit ranking, you must focus on repaying the debts as soon as possible.
Paying only the minimum dues
If you are a credit cardholder, you would know that your monthly statement will have a minimum due amount. This is essentially a small portion of the overall outstanding amount that you must pay to keep your card active. If you have availed a large credit or have debt on multiple card, it is easy to fall into a debt trap and you may end up paying only the minimum due amount, which means that your debt will continue to roll over. Hence, it is advised to pay the credit card bills in full within the due date to improve to CIBIL score.
Errors in the CIBIL report
Sometimes, your credit score may reflect a dip than the previous report. This could be because of mistakes in the CIBIL report. If you notice any errors in your report, you must immediately report it to the credit bureau and get it rectified. Make you sure that you always carefully check the CIBIL report to avoid any discrepancy, which may affect your credit rankings.