If you plan to apply for a loan, your cibil score is something you need to take seriously. Your cibil score is the most crucial factor among the ones the lenders consider when evaluating your loan application. So, you must understand how they calculate the score. Then only you can improve the score and get the loan you are applying for.
Now, let’s look at how the score is calculated and how we can increase it!
First off, what does the term cibil score mean?
In a gist, someone’s cibil score is their credit history’s 3-digit summary. You can calculate the score using information from the ‘Accounts’ and ‘Enquiries’ sections of your cibil report, including your credit cards or loan accounts and their payment status.
A cibil score check helps financial institutions clearly understand the applicant’s capability to repay the debt. Based on your borrowing and repayment history, shared by lenders, the score represents your creditworthiness.
The range of a cibil score is from 300 to 900. The higher you score, the more chances you have to get the loan approved. Clients with a CIBIL score of 750 or higher receive 79 per cent of loans.
How to calculate the cibil score?
Four significant factors influence your cibil score.
- Payment history: Failing to pay EMIs on time or making late payments lowers your credit score.
- Credit mix: Maintaining a good balance between unsecured and secured loans is likely beneficial.
- Multiple inquiries: A high number of loan inquiries can lower your credit score because they signal that your loan load may increase.
- High credit utilization: Decreasing the credit utilization limit would be best. A high credit utilization limit implies a growing debt burden over time and may harm your credit score.
How to improve your credit score?
Here are a few quick and easy deeds that can increase your credit score.
- Pay your EMIs on time. Late payments create a negative impact.
- Keep low balances in your account and reduce your utilization.
- Your credit mix should look healthy. Maintain a good balance between unsecured loans (like credit cards and personal loans) and secured loans (like auto and home loans).
- Try to reduce the number of unsecured loans. Too many unsecured loans decrease the credit score.
- If you apply for a new credit, be moderate with this. It indicates you don’t want excessive credit.
- Keep an eye on your joint and co-signed accounts regularly. Remember that you are equally responsible for every late payment and skipped EMIs done by your co-signed account. It can harm your credit score.
Final Words:
Your cibil score depends on your past payments and the result of your previous credit score check. It also influences your future credit access. What you are doing today will help you develop a more robust and healthier credit footprint in the future. So, pay your EMIs on time, and follow a well-crafted financial plan.
