CIBIL Score and Its Importance: All You Need to Know

 

CIBIL Score and Its Importance: All You Need to Know

 

While applying for a loan or a credit card, the major concern in a borrower’s mind is whether or not his/her application would be approved. Considering the various factors that affect your loan/credit card application, the concern is justified.

To relax yourself a bit, you can check your CIBIL score before you apply for a loan or a credit card. Simply remember, higher the CIBIL score, higher will be the chances of getting your loan/credit card application approved.

But what is CIBIL score and why is it so important?
Let’s find out!

What is CIBIL Score?

In simple terms, CIBIL score refers to a consumer’s credit score. It is a 3-digit numeric summary of a borrower’s financial history, that lies between 300-900. The CIBIL score is calculated on the basis of the borrower’s previous loans, credit history, income, and financial wellbeing. A credit score, over 750 is considered preferable by banks and lenders for providing credit cards and loans.

In short, the CIBIL score showcases the creditworthiness of the consumer. The higher the CIBIL score is, the more will be the chances of getting approved for loans or credit cards.

For example- Suppose Mr. X wants to apply for a loan or a credit card. While considering his application, his CIBIL score would be considered the top-most factor by the lenders. If he has a good CIBIL score, his chances of getting approved for a loan and/or credit cards will increase.

What is a Good CIBIL Score?

A good CIBIL score which is near to 900 is considered favourable by banks and lenders for loan and credit card processing. A user becomes eligible for a loan or credit card if his/her CIBIL score is 750 or more.

Here are the CIBIL scores and their implications showcasing the creditworthiness of a user-

CIBIL Score Range	Explanation
Not Applicable/No History	This means that a user has not used any credit card or taken any loan
350-549	Bad CIBIL Score; meaning that you often delay your credit payments or EMIs against loans
550-649	Fair CIBIL score; meaning that the borrower is trying to improve his/her score by meeting the deadlines
649-749	Good CIBIL score; meaning that the borrower makes timely payment of the loans and credit card bills
750-900	Excellent CIBIL score; meaning that you have always been regular in paying credit and loan amounts

Why is it Important to Maintain CIBIL Score?

The CIBIL score is the most important factor to be considered in the process of a loan or credit card approval. However, this is not just the only benefit of having a good CIBIL score. Let’s take a look at multiple other factors that highlight the importance of maintaining the CIBIL score-

·         Higher chances of loan and credit card approval

·         Chances of receiving a lower rate of interest from lenders and banks

·         Fewer chances of turning into a defaulter

·         Pre-approved loans access

·         Discounts on processing fees and other charges

What Factors Affect CIBIL Score?

CIBIL Score is calculated on the basis of 4 major factors, each having a different weightage. Here is how the breakdown of the importance of each of these factors looks like-

Payment History	30%
Credit Exposure	25%
Credit Type and Duration	25%
Other Factors	20%

·         Payment history

For maintaining a high credit score, users should make their monthly credit card payments and loan EMIs on time. Delayed payments of EMIs and credit bills are seen as though the user is struggling to meet the deadline and maintain credit health. Thus, in order to avoid landing into such a situation, it is better to maintain credit health by making timely payments of your credit bills and loan amount.

·         Credit Utilization Ratio

The amount used by the borrower, out of the total credit amount provided by the bank is known as the Credit Utilization Ratio or CUR. It is advised that borrowers spend not more than 30% of their total credit amount. If a borrower still spends more than the advised limit, it will leave a negative impact on his/her credit score.This is because spending too much on your credit card shows that you rely heavily on it, thereby depicting your dependency on credit which hampers your creditworthiness.

·         Credit type and duration

The right balance between secured and unsecured loans helps in improving the credit score. Secured loans are the ones in which the borrower needs to pledge a security in exchange for the loan amount, whereas unsecured loans are the ones in which no such security is required. Having a healthy mix of both these types of loans shows a person’s experience in handling various types of accounts. Also, a long credit history with no payment defaults makes one eligible for getting loans further.

·         Credit inquiry

Another factor affecting the CIBIL score is the credit inquiry. A credit inquiry refers to a check on the user’s credit history. This credit check can be made by the user himself, which is known as the soft inquiry. When a bank or a lender makes a credit inquiry to verify the credit history of a user, it is known as a hard inquiry. Making multiple credit inquiries or requests simply brings down the credit score of the applicant. Hence, it is advised that you resist yourself from performing multiple credit inquiries.

What are the Types of Loans Impacting CIBIL Score?

The types of loans that impact the CIBIL score are basically divided into 2 categories-

·         Secured Loans- Secured loans are the ones in which the borrower is bound to submit security in exchange for the loan amount. Secured loans include home loans, mortgage loans, vehicle loans, car title loans, life insurance loans, etc.

·         Unsecured Loans- Unsecured loans are the ones that do not require the borrower to submit any security. These loans are offered to the borrowers on the basis of their credit score and various other factors. Unsecured loans include consolidation loans, wedding loans, festival loans, home renovation loans, the top-up loan, etc

Both these types of loans affect the credit score of a person as per their credit history. Having a good credit score and a healthy financial history increases the CIBIL Score and thus helps a person in getting loan and credit card approvals.

How to Check The CIBIL Score Online for free?

Various financial mobile applications allow users to check their CIBIL score online. Paytm is one such application that offers the option of checking the CIBIL score online, through a simple process for free. Here are the steps that you should follow-

·         Visit Paytm application

·         Go to the ‘Featured’ section

·         Check on ‘See all’

·         Click on ‘Free credit score’

·         Enter the required details like PAN number and DOB

·         If you are a new user, you will get an OTP before for profile verification

·         After entering the OTP (if required), click on ‘ Check Credit Score’

·         Your credit score will be displayed on the next screen that appears

 

How can I improve my CIBIL Score?

To improve your CIBIL score, you must follow the following steps-

• Ensure that you pay the credit card amount and loan EMIs on time
• Maintain a credit mix of both secured and unsecured loans
• Limit your credit utilization to 30% out of the total credit limit provided
• You can also connect with the banks to increase your credit limit
• Restrict too many credit/loan application inquiries within a short duration of time
• Restrain from settling down the debts instead of paying them timely. Settling the amount definitely reduces the debt burden however it shows the inability of the person to repay the debt

How does CIBIL score impact loan and credit card eligibility?

CIBIL Score is one of the most important factors taken into account by banks and lenders for providing loans and credit cards. A CIBIL score between 750 and 900 is considered the best and implies higher chances of credit or loan approval.

What is the minimum CIBIL score for acquiring a loan?

Minimum CIBIL Score for acquiring loan ranges from 720-750. A person lying between this range highlights his/her creditworthiness which impacts the approval of a loan or credit card application positively.

What is CIBIL TransUnion score 2.0?

CIBIL score is calculated by the TransUnion CIBIL credit information company. In the year 2012, a fresh version of the CIBIL Score called “CIBIL TransUnion Score 2.0” was launched, which offered detailed information highlighting the risk of lending credit as per the changing Indian market. It helps lenders and banks score the applicant with accuracy and measure the risk in an effective manner.

How is the CIBIL score calculated?

CIBIL score is calculated through its own proprietary algorithm, however, the exact factor through which the score is calculated is not disclosed. Meanwhile, here are a few factors that matter the most when it comes to calculating CIBIL Score-

• Payment History
• Credit Mix
• Credit History Duration
• Hard Inquiries

Card Utilization Ratio

How to know your CIBIL score?

You can log in to the official website of CIBIL or can go to the Paytm application for checking the CIBIL score.

Is there any difference between CIBIL Score and CIBIL report?

CIBIL report, also called Credit Information Report is a detailed document mentioning the user’s borrowing and repayment history. The CIBIL score or rating, thus derives from the detailed report along with other variables.

What is Credit Score & Why it is Important?

Whenever you think of borrowing a loan, or applying for a loan, ‘credit score’ would be the first thing that lenders would ask you for. Well, the question is, what is credit score and what makes it so important for banks and lending institutions? 

Credit score is indeed one of the most important factors taken into consideration by banks and financial institutions. Owing to this, it becomes equally important for borrowers to keep a close eye on their credit score in order to get approved for their desired loan or credit card.

In this blog, let’s talk about what a credit score is, why it is so important and how it is considered to be a major deciding factor when it comes to getting approved for a credit card or a loan. 

What is Credit Score?

A credit score is a number that represents a borrower’s credit history numerically. The credit score is generated on the basis of multiple factors such as pending loans, credit card’s transaction history, credit repayments, etc. Looking at these and multiple other factors, banks and lending institutions whether or not they would go ahead with the borrower’s loan or credit card application. 

• The credit score is a three-digit number that ranges from 300 to 900
• A number closer to 900 is considered best whereas a number that is lower than 650 is considered questionable and requires one to work hard to get the desired loan or credit amount
• To get the desired loan amount at a lower interest rate, it is important for one to strictly maintain a credit history
• Banks, financial institutions, lenders, and others keep a close eye on one’s credit history as a deciding factor
• Even though there are multiple other factors that are taken into consideration at the time of approval of a credit card or a loan application, the credit score holds the most value

What is a Good Credit Score?

The credit score is a numeric summary of the user’s creditworthiness, ranging from 300 to 900. The higher the credit score, the better it is for a borrower. Here are the details of the credit score values and their implications-

CIBIL Score	Credit Score Health
300-549	Bad CIBIL Score Shows irregular payment habits Payment defaults High credit dependency Risk of turning into a defaulter
550-649	Fair CIBIL score Irregular payment behaviour Hard inquiries
650-749	Acceptable CIBIL score Strict & responsible payment habits Error-credit history Eligible for credit cards & loan Lesser risk of turning into a defaulter Expected higher interest rate
750-900	Excellent CIBIL score Timely & responsible payment routine No default payments No outstanding balance High negotiation capabilities Lesser interest rate Clean credit history Error-free credit history

Why Should You Have a Good Credit Score?

Here are the following benefits of a having good credit score –

• Low interest rates

Having a decent credit score on the side makes the user qualify for a low interest rate against loans and credit cards, making it easier for the borrower to pay the amount without much trouble. Hence, it is advised that if you plan to opt for a loan or credit card, ensure the habit of checking credit score timely

• Instant loan & credit card approval

A good credit score proves the credit worthiness of the borrower; hence, users with a good credit score enjoy the timely approval of loans and credit cards. Borrowers with lower or poor credit scores, a major number of times are turned down by lenders, banks, and financial institutions as they cannot be trusted on their credit history

However, there is no sure-shot guarantee of getting loan and credit card approval even after having a desirable credit score. It is important to note that certain other factors are also considered for borrowing loans or buying credit cards. 

• Negotiation power

A credit score close to 900 is considered excellent as it gives the power of negotiation with the interest rate, or new loan amount. This implies that an excellent credit score holds the capability to increase the borrower’s bargaining power. Other than that, the borrower can also avail of special discounts, deals, and offers just by scoring a good credit score. 

• Higher approval amount

Depending upon the borrower’s credit score and his/her income, banks and lending institutions decide the loan amount to offer to the borrower. Having a good credit score on the side allows the banks to lend a higher loan amount to the borrower. However, in situations when the borrower asks for a higher loan amount but has a low credit score, he/she may get it approved at a relatively higher interest rate.

• Acquiring the best credit cards

A good credit score makes one eligible for the best credit cards available in the market. These cards are decked up with the lowest interest rates, rewards, deals & discounts, cashback offers, and lots more. Next time when you think of getting goodness loaded with numerous benefits, make sure you are in the habit of timely payment of credit amount and loan EMIs. 

• Ease of utilities

There are utility firms that prefer to look for the user’s credit reports and scores in order to understand if he/she will be able to pay the bills on time or not. In case of a low credit score, it becomes mandatory for the borrower to deposit a security amount. All these benefits can be cherished by the users only if they have a neat and strict repayment history, which makes for a good credit score. Remember, the better the credit score is, the higher will be the chances of availing multiple benefits. 

What are the Factors Affecting Credit Score?

There are various factors that affect the borrower’s credit score. However, these factors, when rectified, can yield positive results too. Here’s how-

• Payment History

Your payment history reflects how sincere you are when it comes to payment of loan EMIs or credit amounts. Any delayed payment, outstanding amount, or the like will have a direct impact on your credit score. Since, lenders and banks offer the most priority to the user’s credit score before getting started with the loan approval procedure, it is important to develop the habit of timely payments of EMI and credit card balances.

• Credit Utilization Ratio

CUR or the Credit Utilization Ratio is the amount used out of the total credit amount provided by the bank. Spending around 30% of your total credit amount is considered apt. However, expenses made more than that or even equal to the given amount impacts in lowering the credit score. This is because spending too much on your credit card shows that you rely heavily on it, thereby depicting your dependency on credit which hampers your creditworthiness.

• Credit Types

Credit accounts are of two types- Revolving accounts and Installment Loans. A balance between both these types of accounts helps in improving credit score. The balance matters because it shows how you are managing both the accounts and taking responsibility for the same. 

• Credit Inquiries 

A credit inquiry basically refers to a credit check. A credit inquiry is made every time a user submits a credit-based application. When a consumer checks his/her credit report, it is said to be a soft inquiry, which does not impact the credit score. However, inquiries that are made by the lenders when consumers apply for credit are not soft inquiries. When such inquiries are made multiple times, within a short span of time, it hampers the borrower’s credit score. Hence, it is advised not to make unnecessary inquiries about new loans or credits. 

How to Check Credit Score Online?

Multiple financial applications allow borrowers to check their credit score. It is also suggested that you keep a check on your credit score and identify whether you need to maintain or improve it. 

Paytm is one such mobile application that allows you to check your credit score in the following simple and easy steps-

• Open the Paytm Application
• Go to the ‘Featured section’
• Click on ‘See All’
• Next, you need to click on ‘Check Credit Score’
• Enter the required details like DOB, PAN and others 
• If you are a first time user on the application, then you will be sent an OTP for verification purpose
• After entering the OTP, click check your ‘Credit Score’
• Your credit score will be displayed on the next screen that appears

 

How to Check CIBIL Score Using PAN Card?

It is of vital importance to keep a track of the CIBIL score right when you plan to borrow a loan or apply for a credit card. Being one of the major points of consideration in the process of a loan or credit card approval, CIBIL score is calculated on the basis of various factors such as credit history, previous loans, financial wellbeing, of the applicant.

Given its importance, it is pretty easy to check the CIBIL score. You can use your Aadhar card, PAN card, Passport, driving license, or voter ID to check your CIBIL score.

Additionally, there are multiple mobile applications that allow you to check your CIBIL score for free. One such application is Paytm. It follows a simple and convenient process that allows you to check your CIBIL score in a matter of minutes.

Let’s see how you can check your CIBIL score.

How To Check CIBIL Score using PAN Card

To check your CIBIL score on Paytm using a PAN card, you must have the Paytm application downloaded in your mobile phone. After logging in, and getting yourself verified on the application, you must follow these steps-

• Log in to the Paytm application
• Go to the ‘Featured Section’
• Click on ‘See All’
• Click on ‘Check Credit Score’
• Enter the required details such as your PAN, Date of Birth, etc.
• Note that if you are a first time user, an OTP will be sent to the registered mobile number for verification
• Once done with entering the OTP, click on ‘Check credit score’

How To Check CIBIL Score on the CIBIL Website

Apart from using your official documents such as your PAN card, Aadhaar card, etc., you can also check your CIBIL score on the official website of CIBIL.

Here are the steps that you need to follow-

• Log in to the official CIBIL website
• On the top right corner of the website, click on ‘Get Your CIBIL Score”
• Choose your preferred subscription plan
• Enter the required details such as your Date of birth, mobile number, registered email address
• Create a password for your account
• Select PAN as your ID type and enter your PAN card number
• Verify your identity and fill in the required information
• Go to the ‘make payment tab’ for the completion process
• In case you want to check your CIBIL score only once, then you can choose to drop the subscription plan
• Now, you need to login to the account via email id or OTP
• Enter all the required details and click on ‘Submit’
• Your CIBIL score will be displayed on the next screen that appears

Why is PAN Card Important for Checking CIBIL Score?

A PAN card offers a unique identity to every individual in the form of a 10-digit alphanumeric number. This number is basically the card number associated with all the financial institutions and bank accounts of the PAN card holder.

• PAN also helps in locating the applicant’s details through credit bureaus
• The PAN card number is only used for locating the credit information and authentication of details provided by the user
• If the user does not have a PAN card, he/she can check his CIBIL score on the official CIBIL website using his/her passport, Driver’s license, or Voter ID

CIBIL Credit Report Checklist: The Complete Guide

Lack of updated information, errors in user’s details, mistakes made by lenders, suspicious activity, or identity theft- all can be detected from your CIBIL report. These factors can also become a hindrance when it comes to acquiring a loan or a credit card if you overlook the report in detail.

To avoid any such situation, it is advised that you take a look at your CIBIL report at least twice a year. The habit of checking CIBIL reports timely can prevent you from any shortcomings related to credit score, loan approval process or getting a credit card. 

Even though going through the whole report is necessary, there are 4 major points that you should focus upon. In this blog, we will explain to you those key points you should keep in mind when checking the credit report. 

CIBIL Credit Report Checklist

Credit Report check

Credit reports can be checked twice a year for getting a look into how one is performing. The report is the amalgamation of one’s credit history, past repayment practices, personal/financial information, etc. Hence, when you get your credit report, take a closer look at it and follow this CIBIL Credit report checklist religiously-

• Read the whole credit report thoroughly
• Check any outstanding balance left against credit cards or loan EMIs. Sometimes, even after paying the credit amount, there are chances that the bank might have missed sharing the updates with the credit bureau, or the credit information company might have missed or is yet to update your credit report. Thus, it is advised to get the information updated to avoid any negative impact on your credit score
• Examine the report in detail and in case of finding any error in personal data, address, outstanding balance, and others connect to your creditor first or raise the dispute with the credit bureau to the earliest

Identity theft 

The next major point in your CIBIL Credit report checklist is to see if there is any minor or slight change made in your identification details. In case, if you have figured out the change in your identification details, be sure that it is a matter of theft. Take for example- the report states that you have applied for a loan but in reality, you haven’t. This means someone else might have operated your account, used your information, and applied for a loan! 

To know if you are on the right path of detecting the theft or not, keep in mind the below-mentioned points- 

• Look for inquiries that have/haven’t been initiated by you
• Any default or late payments you haven’t made
• Check any loan account which was not opened by you
• Any change in the identification information like address or personal details
• New or wrong phone number updated

In case if you have detected any malicious activity or issue in the credit report, you are supposed to report the same to the credit bureau apart from notifying your respective bank.

Verification of Account Information

Even a minor change that you have not initiated when highlighted in the credit report can cause great harm. To avoid falling into a situation where you might unintentionally hurt your credit score and lose the chance of acquiring a new loan or credit card, here are some of the ways to not fall under the trap- 

• Properly reviewing the account be it the credit card account or loan account
• Check your payment history, credit limit, current balance and others
• Make a list of the inactive and closed accounts
• Track all the late payments and the negative remarks made against them
• Keep all the paperwork related to your a/c organized and handy

Dispute Resolution 

In case you have detected any error, fault or action that has not been commenced by you after reviewing the credit report properly, it is advised to take action as soon as possible. 

Taking an action against anything suspicious, error or resolving the issue is called CIBIL dispute. Here is how you can raise the dispute resolution- 

• Login to the CIBIL website
• Navigate the ‘Credit Reports’ section, find ‘Dispute Center’, and click on the ‘Dispute an Item’ option
• Select the dispute type
• Submit the issue in brief

Generally, CIBIL authority takes 30 days to resolve the issue. Make sure you are well-equipped with all the proof before filing the complaint.

Top 12 Reasons For Loan Rejection With Good CIBIL Score

Even after having a good CIBIL score on the side, there could be multiple reasons behind a rejected loan application. This blog highlights all those possible reasons that are probably blocking your way to acquire a loan amount.

Reasons For Good CIBIL Score But a Rejected Loan Application

Explained below is a list of the top 12 reasons that may block your way in the loan approval process. Go through all the reasons carefully and in case you find any of the reasons familiar, make sure to resolve it before applying for a loan further.

Frequent Credit Borrowing

The habit of borrowing frequently is one of the reasons for rejection of loan applications even after having a good CIBIL score. It makes banks, and financial institutions doubtful of your repayment power. Even if you make timely repayment of multiple loan EMIs and/or credit amounts, the lenders would still doubt your credit dependence and thus, you will remain a risky applicant for them. Furthermore, they will be reluctant to offer you a new loan amount as they believe that you would be overburdened with a new credit amount, resulting in missed or slower credit repayment.

CIBIL Reports Comment

Another reason for a rejected loan application is the comments mentioned in the CIBIL report. The comments can be anything like paying EMIs after due dates, requesting a lower rate of interest, and others. Any kind of comment stated in the report shows the casual behaviour or poor repayment habits of the applicant. Thus, it is strictly advised not to overlook the comments in a CIBIL report as lenders mandatorily pull out the applicant’s credit report before offering a loan or credit. Try to dissolve the comments either by negotiating with the creditors, asking for a goodwill deletion or paying off the debt in full amount.

Career or Salary Instability

A loan application can still be rejected if there is any instability in your salary or job or if your organization is blacklisted by the bank. Apart from that, if you are too frequent with changing your work address or job, you bring a negative impression to your credit report and ultimately hamper your loan approval process. Any form of instability makes lenders, financial institutions more cautious of your application.

Information Matching Defaulter’s Details

The credit report consists of the user’s details like Date of Birth, PAN, residential address, age, gender, employment and other necessary details. In case, any of the aforementioned information matches the details of the defaulter like address, the chances of loan application rejection get high even after a good CIBIL score.

Tax Payment History

Irregular payment of taxes is another reason for the rejection of loan applications. A person who has failed to pay the income tax returns timely for the last couple of years is on the higher verge of loan application rejection.

Previous Loan Rejection History

Your credit report keeps a track of all the rejected/approved loan applications in the past. Whenever you request a new loan, lenders pull out your credit report to check your credit history. In case of frequent loan rejections, your new loan application request can also get rejected. Hence, apply for a new loan only after you have settled all your previous loans.

Poor CIBIL Record of Co-Applicant

If you are applying for a joint loan, your co-applicant’s CIBIL record (if any) is also taken into consideration. In case of a low CIBIL score of your co-applicant, chances are high that your loan application might get rejected. Thus, it is advised to check the co-applicant’s CIBIL record before applying for a loan.

Unbalanced Secured & Unsecured Loans

To get a good credit score, one should always have a healthy mix of unsecured and secured loans. If you are not able to maintain a balance between secured and unsecured loans, lenders will consider you an applicant with credit-based debt, leading to rejection of your loan application.

Multiple Hard Inquiries

Soft inquiries are those which are made to check the credit score or credit report. Such inquiries do not affect your credit score. On the other hand, if the credit report is pulled by a lender to check your credit history, it is called a hard inquiry. If there are frequent hard inquiries made by the lenders, it means that you must have applied for a loan multiple times, which is not considered a good practice as it might result in a rejected loan application. Thus, it is advised to wait for some time before applying for a new loan to avoid hard inquiries.

Financial Information

Another reason for a rejected loan application is failing to submit the complete financial information. Lenders always get a look at your financial summary and in case there is a loophole in the same, the chances of loan application rejection are pretty high even if you have a high credit score.

Inability to verify details

Your loan application can also get rejected if the bank or financial institution is not able to verify your information such as income, address, employment proof, etc.

Applicant’s Age

Applicant’s loan application might be rejected if he/she is closer to the retirement period. Lenders, banks, and financial institutions feel hesitant to offer loans to such applicants due to the chances of zero repayment ability. That is why an applicant’s age plays a huge role when it comes to the acceptance or rejection of loan applications.

Top Factors that Impact Credit Score Positively

A good credit score reflects the borrower’s behaviour of repaying the credit amount on time. As an outcome, a good credit score offers numerous benefits to the borrower like negotiation power on the credit amount, lower rate of interest, rewards on credit cards, and the status of a good debtor.

To aim for a good credit score, a borrower must follow these practices without any fail-

Practices that Affect the Credit Score Positively

Before getting started with all the factors that contribute to a good credit score, it is advised to have a thorough look at the credit report. A credit report is the combination of a user’s credit history, credit activities, personal information and others, which makes it absolutely important for the borrower to examine the credit report. Besides, a credit report should be checked at least twice a year to gain an understanding of one’s financial health and how much effort would be required to achieve a good credit score.

Once done, proceed with the following steps to get a good credit score-

Resolve Report Errors

An error-free credit report impacts the borrower’s credit score positively. Upon receiving the credit report, the first thing that a borrower should do is to confirm all the details written in it. In case of detecting any error, issue, comment, or something suspicious, it should be reported to the concerned authorities as soon as possible. In addition to this, old/false information, change in address or communication details of the borrower, any initiated/unresolved queries, a number of credit accounts, etc. should be checked twice to rectify them, if required!

Credit Repayment Process

It is mandatory to pay off the debt on time in order to achieve a good credit score. Even a single delayed/missed payment can impact the credit score drastically, thereby making it challenging for a borrower to regain a good credit score. Thus, it is advised to set timely reminders for loan EMIs and credit card due dates. Most importantly, the borrower should feel responsible for all the credit payments to enjoy credit-based opportunities in future.

Credit Utilization Ratio

The use of credit utilization ratio till the recommended percentage (30%) helps a borrower achieve a good credit score. However, the opposite of it takes the score further down. Using the credit utilization ratio to more than 30% out of the total credit amount is said to be the over-utilization of CUR. This showcases the borrower’s dependence on the credit amount to manage the expenses, eventually making lenders, financial institutions, and banks sceptical of the borrower’s repayment ability. Thus, instead of falling under the trap, it is advised to use no more than 30% of CUR. Additionally, in case your expenses exceed the acquired credit limit, it is good to connect with the concerned banks, financial institutions or lender to raise the CUR credit limit.

Avoid Credit Card Applications

It is highly recommended to avoid applying for a new credit card or loan as long as one is working towards improving the credit score or immediately after the rejection of the loan application. This is because a fresh loan or credit card application results in multiple hard inquiries within a short span period of time, reflecting one’s credit hunger behaviour. Due to this, the borrowers often end up with rejected loan applications and a lower credit score.

Pay off the Debt

To achieve a good credit score, pay the debt on time, do not settle for partial credit payments, and don’t leave outstanding balances. In case of good cash flow in hand, try to settle full payment. This way, you can prevent yourself from being overburdened to a certain extent.

Set timely reminders

Though reminders are not directly related to improving a credit score, they still play a prominent role. A reminder reminds of loan EMIs and credit card payments due dates. This keeps the borrower away from missing out on any payments, thus impacting the credit score positively.

Be patient

It is important to understand that your credit isn’t damaged or built in a day; thus, it should not be expected to achieve a good credit score overnight. Give some time to yourself, analyze your expenses, figure out how you can manage them and how much credit you require to fulfil the task and the rest will fall in place.

Top Reasons for Low CIBIL Score & How to Improve it

CIBIL score- One of the most important factors behind the early loan approval, the scope of negotiation in the interest rates, hold-over-credit cards. The better the CIBIL score is, the higher will be the chances of getting all these advantages. It is important to note that an applicant with a low CIBIL score may get approved for a loan/credit card, but at a higher interest rate.

To get rid of the landing into situations of higher interest rates on loans or hindrances in the loan/credit approval process, it is necessary to first understand the reasons behind low CIBIL score and then follow steps to improve it.

What is a Good CIBIL Score?

A CIBIL score is a 3-digit numeric summary that defines the creditworthiness of the borrower. It is calculated on the basis of the borrower’s previous credit history, income, financial well being and more.

A good CIBIL score is defined as-

• CIBIL score ranges from 300-900
• CIBIL score between 750 and 900 is considered the best, whereas scores lower than 650 are not considered good
• Good CIBIL score offers benefits like low interest rates on loans, higher credit utilization ratio, negotiating power, etc.
• Low CIBIL score results in high interest rates with no negotiating power and approval for a lesser loan amount

What are the Reasons behind a Low CIBIL Score?

Listed below are a few of the reasons behind low CIBIL score that can hamper a major number of loan or credit based opportunities-

• Bad repayment history
• Higher use of credit utilization ratio
• Multiple hard inquiries
• Multiple errors/comments in CIBIL report
• Mismanagement of credit mix (secured and unsecured loans)

How to Improve CIBIL Score?

Just like there are numerous factors that affect the CIBIL score, there are multiple ways to improve the CIBIL score too. Listed below are some of the ways to improve the score-

• Make timely payments of credit dues and loan EMIs
• Ensure to use credit utilization ratio by 30%
• Maintain the right mix of secured and unsecured loans
• Check CIBIL report twice a year
• Resolve any issue or comment in the CIBIL report at the earliest
• Be careful of how much credit you use
• Do not settle credit amount
• Do not close any old credit card accounts

 

 Is CIBIL score the only factor determining the user’s ability to secure new credit?

A CIBIL score is not the only factor that determines one’s ability to secure new credit. User’s age, income, employment, loan amount and others are also important factors for the approval of loan or credit card applications.

What is the difference between hard inquiries and soft inquiries?

Any inquiry made by a lender when a user applies for a loan or credit card is called hard inquiries. Soft inquiries are those that are made by users to check their credit report for reviewing or monitoring his/her credit behaviour.