CIBIL Score is a factor that determines whether or not a loan should be approved. Every bank that has to sanction any type of loans or even credit cards will depend on the credit scoring to determine how creditworthy an individual is and up to what extent credit facilities can be offered. CIBIL score is the analysis of an individual’s financial commitments, their outstanding credit card value is considered, payment patterns are analyzed, it will also help the bank to know if there has ever been a default on the payments. The high credit score is a sign of high creditworthiness. If your credit score is high, banks will be happy to render loans at low rate of interest as the risk of default is also low.
Reason for Low CIBIL Score
There are many things which can lead to a low CIBIL score. CIBIL score can fall because of one’s own errors or it can also be caused due to errors made by banks and credit unions. Let’s know the reasons in detail.
Delay in repayment towards your loan. If you delay in paying your EMIs, then this is noted on your CIBIL report, and if repeated even twice it can cause a fall in your CIBIL Score.
The main thing which affects one’s CIBIL score is the individual behavior. Customers delay with the repayment of their loans and bills decrease their CIBIL scores. Mostly there is a fall in score because of this.
Outstanding Credit Card Balance is also one of the reasons which can lead to falling in your credit score. People who do not pay their total credit card bills timely or regularly leaves them with a more outstanding balance on their cards. This also leads to a decrease in their credit score.
High credit usage can also be a reason for this. If you use more than 30% of your credit limit, then this can affect your CIBIL negatively.
Having more loans can also be a reason which can decrease your credit score. If one applies for more loans or credit cards, then every time lenders check for the applicant’s credit report to process the loan application, this is counted as a hard inquiry. And too many hard inquiries results to a decrease in the CIBIL score.
What does CIBIL Rating signify?
Rating 0 or -1: If the CIBIL score is 0 or less than 0 then it means that there is absolutely no credit history created through credit cards or loans. At this stage you should consider to take one so that it will help you to get a credit history.
Rating 350 – 550: This rings an alarm as it is considered as a very bad score by banks and financial institutions. This means you are defaulting payments and the probabilities of getting new loans or even new credit cards are very minimal.
Rating 550 – 650: This is considered as an acceptable rating as it indicates that the individual is fairly regular with their payments on loans and credit cards and they can be trusted with any new loans and credit cards. There is high chance of the loan applications being approved without much hassle.
Rating 650 – 750: Individuals with this credit rating are doing well on their financial part of life. There will be no need to face any problems with regard to loans and also credit cards. You should stick to your current financial habits; you could reach the best CIBIL scores sooner.
Rating 750 – 900: This is considered as the best range to be in CIBIL score. This also means that you are a financial expert. An individual who is very regular with their credit payments will have a really good payment history and thus the credit scoring will also pick up. Banks will be very willing to offer credit products with such individuals.
How to Improve Credit Score from 360 to 800 in one year?
By now you know the importance of credit score and would be wondering what the easy ways to improve it are. There could be many reasons why your credit score has had an impact thus it is crucial to first understand the reason for the fall. Based on this information you will be able to find a fix. If you are planning to obtain a new credit card or trying to take any type of loan, then firstly do an analysis of the CIBIL score.
Borrow minimum through credit cards and loans: Try to keep the outstanding debts on credit cards to the minimum, the higher the outstanding debts are; lower will be the CIBIL score. Keeping minimum debts and managing them wisely will help in getting new loans and credit cards easily. Having said that, only if you have some credit cards and existing loans, banks and NBFCs will be able to check your CIBIL score. Thus these have the power to increase and decrease the CIBIL score but it depends on the way you handle your cards. Using credit card balance up to 40% is considered as good and will not cause any adverse effects on the CIBIL score but over utilizing it above this limit will start reducing the CIBIL score from the minimum requirement of 600+.
Check CIBIL Report: If you have been notified that your CIBIL score is low, first check the credit report to know what the reason is for low CIBIL score. It could be at times an error or miscalculation too. Do a detailed study of the CIBIL report not just to know what impacted the CIBIL score but it will also let you know how to improvise the score. Until you request for a detailed report, you will not get the information. All banks and NBFCs will use CIBIL score as the default source to know about the creditworthiness of its applicants.
Don’t Default Payments: Irrespective of how big or small the payment due is on the credit card and loans, never default it. Another crucial part that will affect the CIBIL score is making only minimum payments on credit card bills. It is true that there will be no delay payments charges applied on your card if you make payments for minimum due on credit card bills, but there will be high rate of interest charged on the outstanding amount plus the CIBIL score will get drastically affected.
Don’t try to make settlement of loans and credit cards: At times it is quite possible to feel that the loan or credit card is a burden and you might find it difficult to afford but don’t take the option of loan or credit card settlement (bank will write-off the credit offered to you). You might get rid of the debt but it will affect the CIBIL score and you will not be able to take any loans, credit cards or other credit facilities for at least the next 7 years. The remark will be there on the CIBIL report and on the basis of this all banks and NBFCs will reject the loans or new credit card applications. Banks will even reduce the available credit limits on your credit cards if there are settlement remarks on your CIBIL reports.
Make use of this type of tips to improve your CIBIL score within a year. Along with these put consistent efforts to keep the debt-to-income ratio low and strike a balance between secured and unsecured loans. Secured loans will not impact the CIBIL score to a greater extent and will also help banks to analyze your creditworthiness before approving or sanctioning any loans.