There are certain factors that affect CIBIL scores more than others. Read ahead to know all about the major factors affecting your credit score.
The CIBIL score is a three-digit score that rates a borrower’s creditworthiness. They range from 300-900, and a higher score is considered better. Every lender checks your credit score before approving your loan.
There are some major factors that affect credit scores. They are listed here -
Your repayment history is a gist of all the EMI and credit card bill payments that you have made. This has a major impact on your credit score.
The more regular you are with your payments, the higher your score will be. Thus, you should always pay your EMIs and credit card bills in full within the due date.
Your credit utilization ratio refers to the percentage of credit you have utilized to the credit available to you. You should ideally maintain a CUR below 30%.
Having a high CUR may make you look excessively dependent on credit. A low credit utilization ratio impacts your credit score positively, and you are more likely to get loan approvals.
Credit age is the total number of active credit history you have. A longer credit history allows for greater trust in you by the lender.
Thus, you should be very careful about closing old credit card accounts. Never close your oldest credit card, and try to keep it active by making small purchases and paying the bills on time.
Whenever you apply for a credit product, the lender checks your credit score. This is referred to as a hard pull, and it shows in the ‘enquiry’ section of your credit report. Too many hard credit enquiries affect your credit report, and in turn, your credit score.
To avoid this, refrain from applying for too many credit cards or loans at the same time.
A good mix of credit, including credit cards, secured, and unsecured loans have a positive impact on your credit score. It shows to the lenders that you are able to responsibly manage a variety of credit products successfully.
A good credit mix with timely repayments is one of the major factors affecting credit rating.
Any old loans which have the status of ‘settled’ or are not closed may have a negative impact on your CIBIL score.
In case you have any old loans that were not paid in full, or were settled, you may consider getting in touch with your lender and paying the dues. After that, you can request them to close the loan account.
Sometimes credit companies or your lenders might make errors while reporting your payments or your loan status. These may affect your credit score negatively.
You must check your credit score regularly for any discrepancies. If you happen to spot any, you should raise a dispute and get it rectified.
A good credit score is an essential factor of getting loans at affordable interest rates. Here are some things that a good credit score helps with -
Negotiating a longer tenure
Easier loan approvals
Higher loan amounts
Lower interest rates
Reduces need of documentation
Proves you as responsible and less risky
There are many factors affecting credit rating, but the most important ones are your repayment history, credit mix, credit utilization ratio, and credit enquiries. But your credit report has all details about your financial behavior, which lenders consider before approving your loan.
Some factors like your income, employment, bank balance, etc. have no impact on your credit rating. It is essential to know what are the factors that affect credit score so you can take wise decisions and build a robust credit report.
Your repayment history, credit utilization ratio, credit enquiries, and credit mix affect yout credit score the most. Other than this, you should also pay attention to any errors in your report, credit age, and status of old loans.
Your CIBIL score does not generally go down at once. But if you close an old credit card, take a new loan, or consistently miss payments, you will see a steep decline in your score.
A CIBIL score of 700 to 750 is considered good, and anything above 750 is an excellent score to have.
Factors like your employment, income, bank balance, properties, etc. don’t have any effect on your CIBIL score.
No, if you keep all the credit cards active by making purchases and paying the bills, it’s not bad for credit score. In fact, having many credit cards increases the credit available to you, which has a positive impact on your credit rating.
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