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What Are The Main Factors That Affect the CIBIL Score?

What is CIBIL score?

When you apply for a home loan, a lender will conduct a thorough background check on your finances and credit score. A CIBIL score is a three-digit numeric number that ranges from 300 to 900, and it keeps a record of your past financial records such as personal loans and credit card dues, and these records reflect on your CIBIL score.

It is critical to keep your CIBIL score above 750 and closer to 900 in order to receive favorable lending terms such as low interest rates, long term tenors, sizeable sanctions, and faster approvals. A CIBIL score ranging from 300 to 750 will make it difficult for you to receive favorable home loan offers, and even if you do, the interest rates will be on the higher side when paired with a short-term tenor.

What are the factors that affect your CIBIL Score?

  • High Credit Utilization

If you have credit cards with a high credit limit, it is recommended that you use your credit wisely and do not exceed your credit limit. You should consider using the credit available to you based on your income; ideally, you should not exceed 30% of your credit limit.

For example, if your credit card has a limit of Rs. 1 Lakh, you should not exceed 30% of the credit limit, i.e., Rs. 30,000; exceeding the limit will have a negative impact on CIBIL score and will alert the lender that you are at risk of defaulting.

  • Outstanding Debts

If you have borrowed an excessive amount of credit on your credit cards and personal loan accounts, it is in your best interest to clear your outstanding debts first, as this will have an impact on your CIBIL score and lower your ratings.

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Even if the amount is small, you should consider paying off these outstanding debts because it will help improve your CIBIL score, which will benefit you when you approach a lender for a loan.

  • Payment Behavior 

You must keep repaying your loans, EMIs, and credit card bills on time to keep your CIBIL score from being impacted. According to the CIBIL mandate, if you default on payments for more than 30 days, your rating will be reduced by 100 points.

It is in your best interest to set up an alert or a reminder system to ensure that no payments are missed. If you continue to pay your dues on time, the lender will see that you are creditworthy, responsible, and consistent with your monthly payments.

  • CIBIL Report Error

Your CIBIL score is based on the lenders’ feedback on your credit habits and is comprised of your financial records. If you discover any discrepancies in your CIBIL score, you should contact the lender right away to have them corrected.

Because CIBIL will not change your credit report or lender approval, these errors must be verified by your lender. It is recommended that you check your CIBIL score monthly to ensure that everything is correct.

  • Closing Credit Accounts

The first rule of building a credit report is to use your credit limit, and the best tool for this is a credit card. If you surrender your credit card, you will lose your credit history. It recommended that you keep your long-standing credit account open. You have the option of closing newly opened credit card accounts.

  • Paying Minimum Dues
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When you apply for credit, you have the option of repaying the minimum due against the principal amount owed. Although doing so may result in a debt surplus, rolling over these outstanding amounts will result in the interest amount accumulating over time, making it more difficult to repay the outstanding balance. This may have a significant impact on your CIBIL score. 

  • Multiple Credit Enquires

When you apply for a loan or a credit card, the lender will conduct a thorough background check on your CIBIL score to ensure that you are financially capable of managing your debts. When you make multiple inquiries, your CIBIL rating suffers and the lender perceives you as a credit-hungry applicant. If you have recently been rejected by a lender, it is best not to apply for another loan until your CIBIL score has improved.

  • Credit Mix

Your credit profile should include a mix of secured and unsecured loans because this shows the lender that you can manage a variety of loans. A home loan and a car loan are two examples of secured and unsecured loans, and having this mix in your credit profile will make you more appealing to lenders.

How can you check your CIBIL score?

The process for checking your CIBIL score is simple and straightforward, and most lenders that approach will have provisions for checking your CIBIL score on their website as they have a tie-up with them these days. Here are the steps to learning more about CIBIL score:

Step 1: Visit the lenders website 

Step 2: Navigate to the CIBIL score section of the website 

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Step 3: Upon being redirected to the next page you will be required to fill in the required details such as:

  • Employment Type 
  • Full Name (as on pan card)
  • Pan Card Number 
  • Date Of Birth
  • Contact Number 
  • Net Monthly Salary
  • Email ID
  • Pin Code
  • City Of Residence 
  • Required Loan Type 

Step 4: Accept the service terms.

Step 5: Your CIBIL score will be emailed to you using the email address you provided.