Credit scores are based on a person’s payback history, credit files, loan history, and other criteria and are usually expressed as a three-digit number ranging from 300 to 900 (with 900 being the absolute greatest score).

The concept of banks and lending institutions, behind lending secured and unsecured loans, is based on the applicant’s credit score. Credit score determines your credibility or creditworthiness. This factor determines whether you will be approved for a loan by evaluating your chances of paying your obligations on time.

Your credit score influences both the amount of money you can borrow and the interest rate you’ll pay. Having a low CIBIL score means putting your loan application at risk of rejection. 

What elements are used to determine the Crediy Score?

The CIBIL score is defined in terms of numbers, ranging between 300 to 900. These numbers are calculate using the formula that is based completely on the applicant’s credit history, repayment records of loans or credit cards. The below mention six factors have a major impact on your CIBIL score and should be avoided at all costs. –

Credit Combination

You should have a balance mix of secure and unsecured credit (such as mortgages and car loans) ( such as personal loans, line of credit). It can assist you in raising your CIBIL score.

Debt to Income Ratio

It is define as the ratio between the individual’s debt the individual has presently and his in hand monthly salary.  To enhance your credit score, keep your debts, such as credit card bills and mortgage payments, below 50% of your income. Your credit score will be majorly affect if you have a higher ratio of debt to income. 

Repayment Records

You have to be very careful in making timely payments. Foreclosure, insolvency, or a collection account due to missing payments all affect your CIBIL score immediately. This creates a bad image of the borrower, that he/she is unable to manage his finances and repayment schedule, making it more difficult for him to acquire debt.

Excessive credit card usage

A high credit card debt reflects a high repayment requirement, which can lower your CIBIL Score. Avoid using too many credit cards because this may make you appear credit-hungry to lenders.

Several Information Requests

Lenders may evaluate your credit profile with caution if you’ve lately apply for or been authorize for a number of loans and credit cards, as multiple credit applications imply your financial stress.

Always pay on time:

Late payments are frown upon by lenders. Maintain a low center of gravity. Keep your credit usage in check and avoid overextending yourself.

You have to have a well balanced credit portfolio

A good combination of secure (home loan, auto loan) and unsecure loans is preferable (such as personal loan, credit cards). The fact that there are so many unsecure loans could be view as a negative.

Always go through your credit report

Keep track of your CIBIL Score and Report on a regular basis to avoid unpleasant surprises like a loan application rejection.

The Bottom Line

You must have realize the importance of credit scores while obtaining a loan by now. The lender will pull your credit report when you apply for a mortgage to determine your creditworthiness.

The bottom line is that having higher CIBIL scores will help you to obtain a hassle free loan. You can also attain better loan features with the benefit of lower fees and charges.

If your CIBIL score is low, the chances of getting a loan or best credit cards in India decreases. There can be cases of exception if the lender grants you a loan, if you clear other eligibility requirements

 

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