A credit score is generated by credit bureaus and is a three-digit numeric representation of an individual’s creditworthiness, which is the likelihood of a person defaulting on a loan repayment or credit card dues. Typically ranging between 300 and 900, a high credit score indicates that a person is more likely to use credit responsibly and therefore lenders tend to look more favourably at applications for loans or credit cards made by such people.
A CIBIL score is nothing but a credit score generated by CIBIL, which is India’s oldest bureau. In addition, Equifax, Experian and CRIF High Mark are other players. When you consider a CIBIL score, a score of 750 and above is considered to be good. As per data published by CIBIL, over 79 percent of approved loans are for those individuals with a score of 700 and above.
A credit score is important in the loan approval process because it is the first piece of information that a lender refers to, when evaluating an application.Using this filter, it is typically believed that a higher score increases the chances of loan approval, other factors being in place. However, the decision of whether to lend or decline an application rests solely with the concerned lender, and CIBIL plays no role in the process itself.
What are the factors that determine a CIBIL score?
There are several factors that help determine your CIBIL score, important among which are:
Payment history – This refers to your repayment track record, that is whether payments have been made on time or delayed, or skipped entirely. A consistent repayment schedule can help boost your score.
Credit limit utilisation – While having a high credit limit on your credit card can be a boon, it is advisable to keep in mind that ultimately, a card is nothing but a loan and needs to be serviced well. Hence making complete and timely payments is what helps, along with keeping the credit utilisation limit low. This indicates to a lender that an individual does not depend solely on credit to make ends meet.
Healthy credit mix – A good balance of secured (loans such as home and auto) and unsecured loans (such as personal loans) is required to strengthen your credit score.
Credit history – The length of time that you have held an account also determines your score, so if you have a ‘good’ old account that has been serviced well, it is advisable to maintain it to ramp up your score.
New credit – While it may be tempting to apply for new cards, for instance, owing to attractive offers, keep in mind that each time you make an application, your credit score takes a hit that can impact it negatively. Further, from a lender’s perspective, a sudden influx in the number of cards you own can be indicative of an increased debt burden, which will hamper your score.
How does one get their credit score?
Currently,no bureau offers free scores; they are available on payment of a nominal fee via a hassle-free online process. Should you wish to avail of a score from any or all of the bureaus, providing the stipulated fee and completing some documentation online will ensure your report (and the score with it) is sent to you within a reasonable turn around time.
Ofcourse, to increase credit awareness in the country, websites such as www.freescoreindia.com and credit health managementcompanies such as Credit Sudhaar offer free scores for individual consumers.All you have to do is logon to their websites and apply, following which a freescore will be sent to you via email. As per a survey conducted by Credit Sudhaar in 2013, the awareness on scores and their importance is low, with an alarming 92 percent of respondents not being aware of this parameter.
Different Credit Scores:
Now the credit scores mainly range between 300 and 900. But which score is regarded as the good one and which one is the bad score. The above-mentioned table will explain this to you. Let’s have a watch out at this credit score list.
- Scores in Between 300 and 580 – Leads to denial of your loan. And if a loan is granted then very high-interest rates will be charged on it.
- Scores in Between 581 and 650 – Possibility of loan approval is there but still the interest rates will be higher.
- Scores in Between 651 and 710 – Loan will be approved while the interest rates will be moderate.
- Scores in Between 711 and 750 – Loan will be approved while the interest rates will be competitive.
- Scores in Between 751 and 900 – Loan will be granted for sure and lowest interest rates will be implemented.
So from the above-mentioned table, it is clear that if you are having good credit scores that mean you have good credit record and loan will be easily approved plus fewer interest rates will be charged. But lesser the credit scores, the more chances will be of loan denial and higher will be the interest rates.
How to Improve CIBIL record:
The above-mentioned tips will help you to increase your CIBIL ratings in a short span of time. Let’s go through these tips. Note that there is no such trick which will boost up your score suddenly from lower to extremely good ones. However, you can improve them slowly and gradually. You need to follow certain guidelines and this will take at least one or two months.
- It is important that you get a generated credit report at least once a year. This is because if there is any kind of error in the report then you may get it correct. The errors may include wrong credit limits, late payments, or the items mentioned that don’t belong to you.
- It is necessary that you pay all your bills on time to have a good record. Because such things may appear as the negative points on your credit report and may lead to a decrease in your scores. It is good if you set up reminders for the payment of your bills.
- It is good that you repay the balances mentioned on your credit report as soon as possible. It is useful in boosting up your credit scores.
- Avoid cancelation of credit cards which are not in use. As canceling can lead to a certain decrease in your credit score. If you have got a good long credit card history then this will help to improve your credit scores.
- Another tip is not to exceed your balance above 30% of your credit card limit.
- If you have applied for a loan then it is better that you get it approved soon because the lenders go for certain credit inquiries which may cause a decrease in your credit scores.
- If you do not possess any credit card history or are having any low/bad credit scores, then it is good to opt for a secured credit card. You have to make payment of hundred dollars at least as the security deposit.
- It is good to opt for a gas store card for the purpose of buying snacks, beer and such products on credit. It is good for establishing a good credit report that you make small monthly expenses and you repay them back on time. This will surely improve your credit card score.
A credit score will determine, going forward, whether an individual will be able to avail of a loan, and the terms and conditions under which it will be sanctioned. Hence to make sure you stay credit healthy, it is important to track your score at periodic intervals.
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