When applying for any loan, CIBIL score is one of the key factor lenders look for to determine if you are eligible. This score is a three-digit number that reflects the entire credit history of a borrower. It is composed of data from banks and financial institutions. Usually, the score ranges between 300 and 900, and before you get approved for a loan, the lender looks at this score first. Often, banks won’t approve your loan request if your CIBIL score is low or you have a bad credit history. This shows that the CIBIL score greatly matters when applying for a loan. Therefore, you must understand some habits that can affect your CIBIL score to avoid them.
What is the CIBIL score?
CIBIL score is an essential indicator of your capability to repay credit. This three-digit number ranges from 300 to 900; the closer you are to 900, the better deals you can get. Most lenders prefer a score of at least 750 or higher. CIBIL score is provided by TransUnion CIBIL, one of the Credit Bureaus in India, that aims at recording all credit-related operations of individuals and firms.
In addition, the bureau provides powerful data solutions for businesses to assist them in making smart decisions and mitigating risks. As an individual, it is of utmost importance you take the CIBIL score matters seriously and try to increase it if it’s below the required value.
There are several habits that can affect your CIBIL score. Here are some of them:
- Having Many Loans and Credit Cards
If you have many secured and unsecured loans and credit cards, your CIBIL score is likely to be affected. Having many large loans shows that you are handling other debts. Generally, banks or financial institutions always assess your debt-to-income (DTI) ratio before approving the loan. If they find your DTI showing excess debts, they may not give you another loan so as not to add monthly EMIs on top of what you currently owe.
Not only having many credit cards can impact your CIBIL score, but closing older credit cards may also have an effect. Once you close off a card, the amount available on the card is decreased. Unless there are offsetting spending reductions, this will affect utilization rate which plays a major role in determining the overall score. Consequently, if you have many loans or credits that have accounts that have been opened and closed, together with new ones, it could cause fluctuations in your rating.
- Late Loan Payment
Late and missed payments can severely impact your credit history and lower your score. This is because it shows the lender that either you are not committed to repaying the debt or you don’t even have the means to do so. As such, you must keep up with payment schedules if you want a healthy credit rating. Always make sure debts are paid in monthly installments as agreed.
- Not having a Credit Mix
To ensure a healthy credit rating, you must have a good balance of your secured and unsecured loans. For instance, auto and home loans are secured loans, while credit cards are types of unsecured loans. Having different types of loans will show you are capable of managing a variety of loans which may enhance your CIBIL score in the long run.
4. Not Paying the Monthly Installments in Full
Your CIBIL score can also be affected when you merely pay the minimum amount due. Just a fraction of the total loan should be paid off each month, but if you don’t, interest will continue to accrue on the outstanding balance, making it difficult to clear the debt completely.
If you don’t want to find yourself stuck in a never-ending cycle of debt, you must pay your bills on time and in full. Failure to do that can do more harm than good to your CIBIL score and financial well-being.
- Failure to Track Credit Report
Not tracking your credit report might also have an impact on your credit score. This might happen due to wrong information, delayed reporting, or other discrepancies in the report. It’s advisable you review your credit report for every 6 months. This will help identify any errors and solve them immediately.
- Length of Credit History
Credit history is the number of years that passed after opening a credit account and plays a role in how lenders assess your loan application. A longer credit history assists lenders in making a good decision when providing the loan. To improve your chances of getting good deals, start building your record early so that when you’re ready to apply for personal loan like home or car financing, creditors can look back at these past transactions and be assured that you are the right person to get the loan.
CIBIL score is a very important factor that can determine whether you will get the loan or not. Financial institutions rely heavily on your CIBIL score to assess your creditworthiness. Therefore, maintaining a good CIBIL score is essential to get access to credit in the future. A higher CIBIL score of at least 750 can give you an added advantage for a pre-approved personal loan.