WHAT IS A CIBIL SCORE OR CREDIT SCORE?
Credit Information Bureau (India) Limited [CIBIL] score is a three-digit score, which tells about the consumer’s creditworthiness. It is checked by the lenders while lending loans to the borrowers.
The score ranges from 300-900. A CIBIL score above 750 is considered good. The score below the benchmark, i.e., 250, is low. It is also known as credit score, and it is calculated by CIBIL online. When a person applies for a loan, the score tells about the creditworthiness.
PAYMENTS AND CREDIT SCORE:
- If there are delays in paying the loan amount or the installments, it will impact the credit score, and loans could be declined in the future.
- If you only pay your minimum credit card bill, it will also impact the CIBIL score.
- You could also have a bad credit history because of late payments or default on loan EMIs. Inconsistent and irregular payments to the lender or financial institutions also decrease the credit score.
Check out this great resource on how to remove late payments from credit report.
BENEFITS OF A GOOD CREDIT SCORE:
A good credit score helps you get more loans, easy approvals, and you can check them online too.
- EASY APPROVAL
If the CIBIL score is good, it means the lender trusts your ability to repay the loan. It leads to hassle-free approval of loans.
- HIGHER LOAN AMOUNT
You can get competitive interest rates on a massive amount of loans because of your good credit behavior.
- BETTER INTEREST RATES
It helps you repay less amount as you can discuss the rates with the lenders, getting you lucrative and increased interest rates for the loans.
REASONS WHY CREDIT SCORE DECLINES DESPITE OF TIMELY PAYMENTS?
There are many other factors which also impact the credit score other than the payment history or timely payments of the loan amount.
These are explained below.
MULTIPLE LOANS
If a person has multiple loans simultaneously, it means the burden has increased. The ability to repay the loans has declined overall, impacting the credit score altogether. It is also applicable to credit cards. If the number of cards increases along with the due amount, it impacts the ability to pay and the CIBIL score.
HIGH CREDIT UTILISATION RATE
Let us understand this by an example: If a person is paying the due amount of credit card bill timely within the billing cycle. Still, the spending amount has increased by 30-40% of the total credit limit sanctioned; the utilization rate will increase and bring the score down.
NO CREDIT HISTORY
If you don’t have a record of your credits, you won’t have any CIBIL SCORE. Hence, it can’t be assessed.
A WRONG MIX/COMBINATION OF LOANS
Credit portfolio matters a lot. Your profile should have the right combination of secured and unsecured loans. If you have too many unsecured loans, i.e., no collateral with the bank, you will get a low or bad CIBIL score. If you cannot repay the secured loans, banks will convert the collateral into cash and affect your credit score.
INCORRECT INFORMATION IN YOUR CREDIT REPORT
It can be another significant reason for the reduction in credit scores. Sometimes, the lender can also accidentally report inaccurate information to agencies giving credits; you should resolve this first if this happens.
HOW TO IMPROVE THE CIBIL SCORE?
- You should pay the dues and the borrowed money in the stipulated period. Payments must be regularly and consistently paid for a good credit score.
- While taking more than one loan, one must always pay your EMIs apart from regular expenses, and the balance in the credit portfolio should be maintained.
- By taking minimum credit, you can maintain your correct credit utilization rate. It is advisable not to take credit close to the sanctioned amount to help keep a good credit score.
CONCLUSION:
To get a loan of your choice, you must have a good credit score. If you do not have a good credit record, it will become more challenging to get credit. So, maintaining a good CIBIL score is essential.
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