In today’s era, the most important thing to get a loan is credit score. A good credit score makes your loan disbursal easier . Conversely, if your credit score deteriorates, you may find it very difficult to get a loan or even application is rejected . Even if you get a loan, then at a very high interest rate. The credit score is a kind of guarantee today. Timely credit card payment, loan installment payment will a help in maintaining a good credit score. Get your credit score time to time . With this, you will be able to know the reason for deterioration of credit score and will be able to improve in time. In India, the mostly used credit score is CIBIL .Its a three digit number ranges from 300 to 900. Most credit scores fall between range of 600 and 750. Higher credit scores signify better credit outcomes and can make creditors more confident in your capabilities of repaying future debts as decided.
Credit scores are used by Banks, credit card companies, automobile financing companies , home loan lenders etc , to come to a decisions about whether or not to offer your credit.
One of the most well-known types of credit score is CIBIL score used by many lenders and ranges from 300 to 900. Anything above 700 is considered good score which speak about your financial stability and integrity.
Why is credit score so important ?
Credit scores are decision-making tools used by lenders to help them anticipate how likely you are to repay your loan on time. Credit scores are also referred sometimes as risk scores as they help lenders assess the risk involved in getting their money repaid as agreed.
A good credit score always essential to qualify for a loan and that to on low interest rates.
However, credit scores are usually not the only things lenders will look at when deciding to extend you credit or offer you a loan. Your credit report also contains other details also such as your total current debt, repayments , credit reports or any other adverse marking may also be taken into consideration in the credit approval process. Other than your credit score report , lenders may also consider your debt to income ratio, depending on the type of loan you’ve applied for.
Factors that impact Your Credit Score
Credit scores are generally impacted by elements in your credit report, such as:
- Loans ( Home, Auto, etc ) and credit cards payment history, including the late payments.
- Available credit
- Too many loans and credit cards
- Total amount of debt
- credit inquiries
- New credit accounts
How to improve Your CIBIL score?
Your CIBIL Score is based on your credit discipline and past credit repayment track record. Good repayment habits increases your CIBIL score range. Banks submit your loan details to CIBIL on a regular basis, which over-time gets documented in your credit report and is used to calculate your score. Some of the important factors that are used in your CIBIL Score calculation along with tips to maintain the best credit score has been included in the table below:
- Keep your CIBIL Report free of errors:
There are cases when despite of repaying loan on time , Your CIBIL report may have some error. Bring it to the notice of CIBIL and get it corrected. report. Do CIBIL check on a regular basis, especially after closing a loan or a card.
- Payment as per schedule :
The repayment schedule is an important factor for calculating CIBIL score of an individual. Do not miss the payment . The track record of the payment made towards loan and credit cards makes up to one-third of the score. Thus, any kind of late payment will adversely bring down the CIBIL score .
- Limit the utilization of your credit limit:
Avoid the full utilization of your credit card. Make the full payment of monthly credit cards bills.
- Do not opt for credit card or loan settlement:
Loan or credit card settlement can negatively affect your CIBIL score and would be difficult to obtain a loan in future.
- Avoiding multiple credit card or loan application :
Multiple Loan or credit card applications from different banks and NBFC Institutions imparts a negative impression and may lead to credit rejection in turn, affecting your CIBIL score.