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Your CIBIL score is the first thing that lenders look when they are evaluating your loan application. Hence having a good CIBIL score is necessary for getting approved for any loan.
CIBIL score is also known as credit score. CIBIL score is 3 digit numeric summary of your credit history that is calculated by using information found in ‘Accounts’ and ‘enquires’ section of your CIBIL report. This also includes the loan accounts or credit cards payment status and also the outstanding amounts days past due. Your credit worthiness, based on your borrowing and repayment history is reflected by your credit score to the lenders. The range for CIBIL score is 300 to 900. Higher your credit score better are your chances of getting your loan approved. Credit score more than 650 is mostly accepted by the lenders during approving your loan application.
Factors affecting your CIBIL ScoreThere are various factors that impact your CIBIL score. Some of the factors are discussed below:
- Repayment history: This is a significant factor which influences your credit score. Repayment history is the summary of your borrowings and repayment done. You get a lower credit score if you have poor loan repayment history. The unpaid debts show your credit unworthiness which lowers your CIBIL score.
- Credit mix: You should maintain the healthy mix of secured and unsecured loans. If you have only one kind of credit it does not help in improving your CIBIL score. Having healthy blend between both secured and unsecure loans gives positive impact to your CIBIL score.
- Multiple loan enquiries: Making various loan enquires have negative impact on your CIBIL score. One or two loan enquire are fine but more than that have drastic effect on your credit worthiness. When you apply for a loan your credit history is pulled out which is called hard inquiry. Multiple loan applications lower your CIBIL score as numerous hard questions are asked. If you are not confident of your eligibility you should avoid making enquires. If you get rejected you should not apply for another loan immediately. You should atleast wait for 6 months before reapplying and should improve your CIBIL score during the time.
- Debts: Your existing debts also have affect on your CIBIL score. If you have multiple debts under your name it will give you lower rating until you repay all your debts successfully. This situation can be prevented by not getting multiple loans at same time.
- Credit Utilization ratio: The high credit utilization ratio indicates the increasing debt over time which have negative impact on your CIBIL score.
- Credit repayments: The timely credit repayments improve your credit score. If you decide to settle your loan with a considerable amount in a single payment it affects negatively your score as it may create some doubts which decrease your score. By paying your debt in regular instalments have positive effect on your CIBIL score.
How can you improve your CIBIL score?
Your CIBIL score is based on your credit and repayment history but it also affects your future access to credit. Here are few tips that will help you to improve your score:
- Always try to pay your dues on time as late payments are rated negatively by the lenders.
- You should keep you balance low. You should not too much credit and control your utilisation.
- Always try to maintain healthy balance between secured loans and unsecured loans. Too many unsecured loans have negative impact on your score.
- Apply for new credit in moderation because it shows that you are not continuously seeking excessive credit.
- Monitor your co-signed, guaranteed and join accounts monthly. As you are held equally liable for missed payments in co-signed, guaranteed and jointly held accounts, as your joint holder’s negligence can affect your ability to access credit when needed.
- Review your credit history frequently throughout the year.
- Monitor your CIBIL score and reports regularly to avoid any unpleasant surprises like rejected loan application.
- Avoid taking more than two amounts of debts at a single time.
- Create a credit history that comprises different types of debts.
- You should opt for the longest period of time for repaying the debt.
Advantages of having high CIBIL score
- You can get the debts for longer periods.
- It will help you in getting lower interest rates on loans.
- You get better negotiating offers.
- Higher limit for credit card.
- It allows the faster approval on loan applications.
- You may get the discount on debt processing charges and other fees.