The approval of your loan application depends on several factors. However, the prime factor determining your creditworthiness to the lender is your credit score. Your past credit history and the pattern you have displayed in servicing loans availed are the key parameters on which the lender decides to approve your loan application.
What is a CIBIL Score?
The CIBIL score represents your repayment ability numerically. The score comes in the form of a three-digit number in the range of 300 to 900. The closer you get to 900, the higher your chances of getting better deals on credit cards and loans. As a thumb rule, most financial institutions consider a CIBIL score of 750 and above as a benchmark.
It is essential you understand the key factors that form the basis of your credit score. The factors and the weightage of each of them as under:
| FACTORS | WEIGHTAGE |
| Repayment History | 30% |
| Existing Credit Exposure | 25% |
| Types of Credit Taken | 25% |
| Other Factors | 20% |
Top Factors Affecting Your Credit Score:
- Repayment Track Record:
Your repayment track record on the existing loans is the single most important factor affecting your credit score. Delinquency of 30 days can affect your credit score by up to 100 points. It would be best to honour your commitments towards your EMIs and credit cards every month. Any inconsistency in your repayment fetching overdue interest is detrimental to your creditworthiness.
- Credit Utilization Ratio:
In an ideal situation, you should not use more than 30% of the credit limit sanctioned. Therefore, you should be careful of your credit limit utilization. High utilization of the limit hampers your credit rating. It indicates that you are prone to spend and run an increased risk of default.
- Outstanding Debt:
Any outstanding debt, however small, needs to be paid off. You have to take utmost care in this regard. Any overdue loans reflect negatively on your credit scorecard.
- Multiple Loan Applications:
A track record of multiple loan applications will show you in poor light as regards your creditworthiness. You must do a credit score check and then apply for a loan. It will ensure your application will be looked into favourably. If your loan application gets rejected, it will negatively mark your credit score.
- Credit Mix:
A healthy mix of various forms of credit, both secured and unsecured, helps boost the credit score.
- Only Paying The Minimum Amount Due:
Making payment of a minimum amount reflects poor repayment habits. It shows your reluctance to clear the dues altogether. It also shows that you are getting into a debt trap and might not serve the additional burden of another loan.
- Age Analysis of Credit History:
The length of your credit history is a very sound pointer to your credit behavior. If you have credit, which is long and the same has been appropriately served, it boosts your credit rating.
You never know when you would need additional funds to meet any unplanned expenses. In that moment of crisis, taking a loan from a lending institution, whether it is a bank or non-banking financing company, is the option. Therefore, it is advisable to keep your existing portfolio clean and healthy.
A healthy credit history enhances your credit score, which directly impacts your chances of securing a loan, that too in the best terms.
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