• A good credit score is necessary for comfortable and prompt approval of your loans. You can not build a great credit score overnight as the scores are calculated using your credit history.
  • CIBIL (Credit Information Bureau India Limited) scores typically vary from 300 to 900 in the range of credit information offices. During your loan application, lenders check credit scores and consider that a credit score greater than 750 is ideal. High credit scores typically mean guaranteed and quick loan approvals, while low score may lead to rejection of your application.
  • Your CIBIL score is the key determinant of the prime impression of you on the lender. So, learn how different parameters determine your score? And what could have an impact on it?

Payment activities

  • If you frequently and consistently have made late refunds or defaulted on your EMIs, it will have a major impact on the credit score. 
  • Your payment history has a 30 per cent weightage and is one of the criteria for CIBIL determination. So, it is imperative to make sure that every month you pay off your credit card bills and EMIs. If you have 30-day delinquency, your CIBIL score will decrease by 100 points. 
  • Therefore, experts would suggest that they set up reimbursement alerts and reminders to eliminate payment defaults or defaults to stop you from drowning in several credit card bills and big-ticket size loans. 
  • Missed or late payments contribute to a low score, which gives the lender the opinion that the credit bills are not paid back regularly.

Your total debt

  • The borrower should watch their credit utilisation ratio. It is the amount of credit that is used proportionally to your credit limit. To calculate the CIBIL score, the high use of credit is a part of a parameter called ‘Credit Exposure’ that calculates the credit score and has a weight of 25 per cent. 
  • Experts recommend that your credit card limit should not surpass 30 per cent. You do not spend more than ₹ 45,000 if, for example, your card limit is ₹ 1.5 lakhs. If you exceed 50 per cent of your loan limit, your score will have a dramatically negative effect. Generally, rising the current balance on your credit card means a heavy burden on repayment. Lenders can get an idea that you are at a high risk of defaulting if you have a high credit exposure.

Your credit mix

  • A credit mix is the combination of your secured and unsecured loans. One with a healthy balance between the two is a good credit combination. Credit mix is also included in the ‘Credit Type and Duration’ CIBIL score parameter and has a weightage of 25 per cent for deciding your CIBIL score.
  • A secured loan is typically a home or vehicle loan, whereas an unsecured loan is a personal loan. A myopic loan mix is considered unhealthy with loans that are skewed towards one type of loan. It gives the impression that you have expertise in handling various types of loans if you have a healthy balance between different loan types.

Number of enquiries made on loans

Banks and lenders will ask your CIBIL report for a better view of your credit history and CIBIL score in new loans and credit card applications. The CIBIL score parameter “Credit Exposure” also involves multiple inquiries. If you make many applications and record many requests in your profile, your score is adversely affected. When applying for loans with many banks or suppliers, you’re considered to be hungry for credit.

Credit history duration

Your credit history is measured in all the years since your credit account has been opened. A long history of credit makes lenders trust that they are making the right decision by offering credit. Therefore, building your credit history as early as possible is advisable. If you do, you have a strong credit record when you apply for loans such as home or vehicle loans.

Only paying the minimum due amounts

If you are paying the only minimum due amount, then you should change your strategy, because, in the long run, it may have adverse effects on your CIBIL ranking. The minimum amount is a minimum part of each month’s outstanding. You can quickly slip into a debt trap if you pay the minimum amount. The remaining unpaid balance would raise your interest in significant amounts. It is better to pay your credit card bill in full. Remember that this represents appalling repayment conduct if you do not.

Checking your CIBIL score regularly

  • The details about your current and past credit reports are given in your CIBIL report. You can spot errors that destroy your CIBIL score by reviewing your account periodically. If you notice inconsistencies, fix them immediately by reporting them promptly. Without disclosing new revisions, CIBIL will not correct any errors.
  • Overall, 20 per cent of your CIBIL score constitutes of these variables. You can easily prevent wrong credit actions which may currently hamper your score by knowing these key parameters. To find errors or anomalies that reduce your score, you should review your CIBIL score regularly.

Conclusion: Put those good credit practises into effect when you opt for loans. You can select a tenure that fits your financial needs and priorities and guarantees a healthy credit rating. Carefully follow these rules to ensure you have an excellent credit score and history.

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