New to Credit Cards and Loans? Know the Factors Impacting CIBIL Score
The most important factor that helps a lender decide whether or not to issue a credit card or approve a loan application to an applicant is their CIBIL score; CIBIL full form is Credit Information Bureau (India) Limited. The score is called Transunion CIBIL and is used by lenders in India to assess an applicant’s creditworthiness. The score is in the range of 300-900 with 700 being good enough to get your loan application approved. Any bank or financial institution will consider a score of 750 or more to be excellent when considering whether to offer a person a loan or credit card. On the other hand, having a low CIBIL score makes it more difficult to obtain a credit card or loan. However, even if your application indeed gets approved, the interest rate charged by the lender will be higher in your case.
If you are new to credit, you should know that there are a number of factors that contribute to a CIBIL score; CIBIL full form is Credit Information Bureau (India) Limited, including your previous payment history, credit exposure, type of credit, etc., each of which has a different weightage when doing CIBIL score calculation. These are the primary factors that determine your CIBIL score, and if these factors are not handled carefully, they could have a negative impact on your score. Let’s discuss these factors briefly so as to inform you what you shouldn’t do with your credit score.
Paying your bills very late: Payment history is the main factor that has an impact on a credit score- it makes up 35% of your CIBIL score; CIBIL full form is Credit Information Bureau (India) Limited). In the event that you forget or fail to make timely payments, your credit score can be significantly impacted. Therefore, you should pay your bills on time to prevent your credit score from going down. To ensure the same, you can set reminders on your phone so that you are informed about the due date. You can also use the auto-pay feature, which will automatically take money out of your savings account and credit your credit card account. By adhering to these guidelines, you won’t forget to pay your credit card bills, and your CIBIL score won’t be impacted when the lender does CIBIL score calculation.
Paying only the minimum amount due: The minimum amount owed by the credit card is a very small part of the total billed amount. If you only pay the due amount, interest continues to accrue on the outstanding balance and the doing CIBIL score calculation will get affected. If interest starts accruing on your unpaid bills, it becomes impossible to pay off the entire amount because it grows to be rather large. This practice may cause you to quickly slide into a debt trap, and if you enter one, it will be very challenging to break out. From a lender’s perspective, this shows that you are careless with your debt. Therefore, if you don’t want your credit score to go down, it’s crucial to make your payments in full and on time. If you are unable to pay the whole amount, pay the most you are able to, which should always be more than the minimum amount due.
Having a high credit utilization ratio: The credit utilization ratio indicates how much available credit you have already used. Experts advise us to maintain this number under 30% for better CIBIL score calculation. For instance, your credit card has a 2 lakh rupee credit limit. According to experts, you should only use 30%, or Rs. 60,000, of this possible limit. If you want a higher credit score, keep your credit ratio low. A higher credit utilization ratio demonstrates your excessive dependence on credit which isn’t a good sign.
Multiple applications for credit cards: Before processing your request for a credit card, any bank or financial institution will compile your credit report to examine your credit score, which is usually referred to as a “hard inquiry.” Each time this kind of query is made, your credit score will be reduced, which will impact the CIBIL score calculation. Therefore, if you have applied for multiple credit cards, many hard inquiries will be made about you, which will affect your credit score. Therefore, refrain from sending out multiple applications at once, and if one has been rejected by the bank, don’t rush to submit another application.
Mistakes in the CIBIL Report: Your past and present credits are all listed in your CIBIL report; CIBIL full form is Credit Information Bureau (India) Limited. Your credit score will drop if there are any inaccuracies in this report. Therefore, you should be careful to carefully review the credit reports and have any inconsistencies in the reports corrected.
Credit mix: Credit mix, or the variety of credit accounts, is one of the most popular CIBIL score-affecting criteria used to determine credit ratings. Lenders can see that a borrower can manage multiple credit accounts, such as a credit card, personal loan, and mortgage, simultaneously. Additionally, it helps them understand their financial situation better and increases their willingness to pay off debt. The more distinct types of credit one have, the better, even though having a less diverse credit portfolio wouldn’t always lead to worse scores.
To sum up
The CIBIL Score is the most significant criterion used to determine whether or not a person is creditworthy enough to be given any credit. A good CIBIL score will provide you with more possibilities in terms of better credit cards or reduced interest charges, whereas a low CIBIL score will make it harder for you to get a good credit card. However, it is crucial to have a decent credit score, often above 750, in order to take advantage of better opportunities. There are several factors that affect your CIBIL score, and if they are not managed responsibly, they can affect your credit score. As a result, it is crucial to consider these aspects if you want to have a decent CIBIL score.
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