Good credit score helps when applying for loan or credit card. Here are some main tips related to CIBIL score:
● A good credit score will determine your eligibility for a loan or credit card
● All your financial decisions impact your credit score
● You must maintain a high credit score
There you are, fidgeting with your phone on a particularly boring Wednesday afternoon, paying extra attention to every notification. That’s when you get an alert from one of your finance apps saying, “new CIBIL score available”. As the credit-responsible person that you are, you decide to check your credit score just for the kicks, only to notice that there’s a drop in your modest score.
Your financial decisions impact your CIBIL score all the time. An increase in the credit score is always exciting but a drop, not so much!
A range of things could cause that drop in your CIBIL score. The key is to understand how a CIBIL score functions and then work towards improving it.
What is a CIBIL score?
Credit Information Bureau (India) Limited or CIBIL is India’s first Credit Information Company. They have access to your credit information, including your financial transactions where you borrow and repay the money. They retain records pertaining to your history of loans and credit cards. They use these stats to create a Credit Information Report (CIR) and credit score. Banks and lenders evaluate this score when deciding whether you qualify for a loan or a credit card.
Why Is It So Important?
Your credit score, also known as CIBIL score reflects your creditworthiness. It determines how risky or reliable you are as a borrower. This has a direct impact on your financial life. Through this score banks and lenders not only evaluate if you qualify for a loan or credit card but also use it to determine your loan amount and your interest rate. Do you know what is a good CIBIL score and why it is important to maintain a good CIBIL score here we will discuss in details.
What is a Good CIBIL Score?
CIBIL score is allotted on a scale of 300 to 900. A higher score, ideally over 700 indicates high credit trustworthiness. People with such a score are more likely to get positive responses when applying for loans or credit cards. On the other hand, a score closer to 300 is most likely to get rejected.
Being aware of how credit scores are affected will help you maintain a good score. To begin with, avoid things that could cause a drop in your CIBIL score
Reasons Cause a Drop In Your CIBIL Score
● You Missed Payments On One Of Your Credit Cards Or Loans
Your CIBIL score indicates how likely you are to repay your debts. If you miss paying your credit card bills or loans on time, it affects your overall credit health. It proves that you can’t pay these debts on time are that is a big red flag to lenders.
● Your Credit Utilisation Has Increased
Credit cards offer you a certain credit limit. If you are someone who utilises this limit to the maximum it could reflect badly on your score. A higher credit might suggest careless credit behaviour, which could contribute to a lower CIBIL score. This gives creditors an idea of how responsibly you use your credit. A high credit also indicates a high repayment burden. Experts recommend you keep your overall credit utilisation rate at or below 30% to maintain your credit score.
● You’ve Made Multiple Loan Applications
Many people apply for several loans and credit cards to get the most out of it. What people don’t realise is that multiple applications affect your CIBIL score. When you apply for a loan or credit card, the lender requests CIBIL to access your report to perform a credit check. This is considered a “hard inquiry” and it impacts your credit score negatively. When you make multiple applications, various lenders will make hard inquiries in quick succession. This affects your CIBIL score significantly and indicates a ‘credit hungry behaviour’.
● You Have Many Unsecured Loans
An unsecured loan is a type of loan that doesn’t require any collateral. Credit cards and personal loans are the most common unsecured credit that people take. Having too many unsecured loans indicates that you probably have too many monthly repayment obligations. This leads to a lower credit score too. To improve your CIBIL score immediately, you need to ensure you have a credit mix of secured loans too.
● You Cancelled a Credit Card
Cancelling a credit card could also cause a drop in your CIBIL score. That is because your credit cards show the total amount of credit you can avail. Cancelling a credit card lowers the credit limit. For instance, if you have five credit cards and if one is closed or cancelled, you are reducing the amount of money available for spending and in turn increasing the credit utilisation.
A financially conscious person should constantly keep track of their CIBIL score. Bajaj Finserv offers you a detailed guide on how to not just maintain but increase your CIBIL score too. Bajaj Finserv also brings you pre-approved offers for personal loans, home loans, and a bunch of other financial products that will help your credit score.