CIBIL™ score is important for obtaining credit & in your credit report. It shows your credit behavior & also your creditworthiness. What is the importance of it?
Over the past years, with changing lifestyles, spending habits, mindsets, priorities and perspectives, financial institutions have felt the need to adopt a common metric to assess the creditworthiness of the applicant/borrower. This is exactly the purpose served by a Credit Score. By displaying your credit repayment history and behavior, it offers a pertinent insight to financial institutions to assess your credit risk i.e. the possibility of default in repayment. Also, while a high credit score can turn out to be a boon for your financial health in multiple ways, a low credit score has the capacity of hurting your financial health.
What Is A CIBIL Score?
A CIBIL score is a consumer’s credit score. It is a summary of a consumer’s credit history and a reflection of a person’s credit profile and is measured using a three-digit number which generally ranges from 300 to 900. . This is based on credit behavior of the consumer in the past, including the borrowing and repayment regularity as shared by banks and lenders with CIBILTM on a regular basis.
A person’s past credit history is taken to be a measure of his future actions and in line with that; the CIBIL
TransUnion CIBIL is a leading credit information company in India with a large database of customer credit information. It was set up in the year 2000.
What Is A CIBIL Report?
Factors That Impact A CIBIL Score?
The CIBIL score is generated by an algorithm, which calculates the result based on a wide variety of data points including macro-level credit things among other key factors. The final credit score primarily considers the credit history of a person for the past 3 years.
The ways to improve your credit rating by taking conscious measures to improve are
- Set reminders for payments and be credit disciplined
Any default or failure to repay any outstanding debt has a significant impact on your Credit Score. This is why you need to maintain credit discipline by ensuring timely repayment of EMIs. Any delay can affect your credit score adversely.
- Maintaining older credit cards to lengthen credit history
If you have old credit cards, you should continue to maintain them as long as possible to help in building a solid and lengthy credit history, which helps in maintaining a good credit score.
- Avoid availing too much credit at a time.
If you take multiple loans at once, it will show that you are trapped in a cycle of insufficient funds, which affects your credit score adversely. On the other hand, if you take a loan and repay it successfully it goes a long way in boosting your credit score.
The factors that define a consumer’s CIBIL credit score include his payment patterns and history, the total secured and unsecured loans availed, the number of applications for a credit card or a loan and also the total usage of available limits on a credit card. The latest credit score, however, also includes the depth of credit, which is the duration of existing credit history, long-term outstanding balances, and transaction history on credit cards.
Improving your credit score
The initial step to improving your credit score is to start working towards resolving any disputed transactions that are charged to your credit card but do not belong to you. The users may take the help of credit bureaus who can raise disputes with financial institutions. The next steps involve paying off any delinquent loan EMIs or credit card payments and continuing to make timely payments over a period of time. Also, they ought to steer clear of utilizing the maximum limit on the credit card. Another thing to remember is to avoid shopping for credit by not applying for multiple loans or cards within a short period of time, to strive to maintain a healthy mix of various loans and aim to build a long-term credit history.
Do late payments and high credit utilization affect your CIBIL Score?
Yes. If you have missed any payments on any of your loans over a period of time, your CIBIL score would be impacted negatively. Also, a higher utilization equals more repayments, which also negatively impacts your score.
How do more unsecured (personal) loans affect your score?
score adversely, as such loans have a high rate of interest as compared to other loans such as a home loan or a car loan and thus, are more likely to result in defaults.
- Also keeping tabs on your total credit utilization and ensuring a low balance of payments also helps in improving the CIBIL score.
- Having more secured loans as compared to unsecured loans and prompt repayment will help in improving the score to a great extent.
- Review your Credit score and your Credit history annually.
- Prompt and full repayments also boost your Credit Score.