A CIBIL Score is a 3-digit numerical number that falls in the range of 300-900 which represents your ability to repay the credit or represents your creditworthiness.
The score is calculated on the individual’s credit report. If the is score near around 900 then an individual can get loans or credit cards easily while if the score is low then it will be difficult to get credit from banks or other financial institutions.
In also addition, it is also important for apply visa sometimes when an individual applies for a visa then authorities ask for the applicant’s Credit score.
CIBIL score is calculated by TransUnion CIBIL Credit Bureau after taking into consideration several factors including payment history, credit type, the age of the credit, and other factors.
Factors affecting CIBIL Score
- Payment History: 30% of your CIBIL score is affected due to delay in payments.
- Credit Exposure: 25% is when the credit limit is increased.
- Credit mix and duration: Many loans and credit cards affect about 25% of your CIBIL score.
- Other factors: 20% is attributed to other factors.
Major Factors Affect CIBIL Score
1. Due Date of Payments
Missing the due date of credit card bill, not paying the EMI on time can have a negative impact on your credit history.
The credit history presents you with complete details about the due date remaining for unpaid EMIs. Thus, you must keep-paying bills and EMIs on time to maintain your good credit score.
2. Multiple Loan Applications
Sometimes when you will apply multiple loans to fill your credit requirements then lenders will need to check your creditworthiness. This is called a hard inquiry that affects your credit report. It will show that you are credit hunger.
In also addition, when you apply for multiple loan applications then the lending company does proper scanning of your CIBIL report to check how many loans you borrowed and is the repayment is made on time.
Thus, it’s better to limit your loan applications, that will also bring your credit burden down.
3. Increase Credit Limit
An increase in the limit on a credit card will give you the flexibility to gain more debt, which can affect your credit score in the long term.
The requesting to increase in the credit card also shows that you are primarily dependent on the credit card. Therefore, it is advisable to avoid opting for a high limit on your credit card.
4. Error Free Credit Report
Sometimes there are chances of having errors such as errors include default on an individual’s payment or mistake in name in the credit report that affects an individual’s CIBIL score.
If an individual has been borrowing a business loan and repaying it on time, then he/ she must check the credit score once in a quarter.
If there is any mistake, then correct it by logging in to the credit bureau website.
5. Outstanding Debt
Everyone should always make sure to clear off their outstanding debts. When they have unpaid dues reflected on their credit report. So it is advised to pay off the outstanding dues even if the amount is small.
6. Paying only the Minimum Amount Due
A minimum amount due is a small portion of the principal that is outstanding every month. You may fall into a debt trap if you constantly pay only the minimum amount due.
Rolling over the debt by paying only the minimum amount leads to the interest compounding on your outstanding balance. So, it is advised to pay your credit card bills in full. It also reflects poor repayment behaviour.