When you place an application for any loan with the bank, the initial thing your lender will check is your credit history. If you hold a poor credit history and your score is on the lower end, your lender will directly turn down your application for a loan. However, if you hold a strong credit score, your lender will instantly pass your application for a loan for more formalities. Given the credit score or CIBIL score is the initial and major determining parameter to assist you in getting your application for a loan processed, it is essential to understand the factors that impact your credit score and ensure to take measures accordingly to ameliorate it if it is on the lower end. Note that CIBIL full form is Credit Information Bureau (India) Limited and for CIBIL score check, you must consider approaching CIBIL’s official website. Alternatively, you may also approach the online lending platform for a thorough CIBIL score check monthly for free.
Most of you often think if you do not pay your credit card dues on time, your score gets extremely impacted. However, it is not just the parameter that impacts your score. There are several parameters that you must consider for maintaining a strong credit score and history.
Listed here are several parameters that might impact your score –
Multiple loans and credit cards –
Having multiple unsecured and secured loans might impact your credit score. Similarly, holding multiple credit cards might lower your score. This is because they indicate high debt that you already hold. Generally, banks factor in your DTI or debt-to-income ratio before approving your application for a loan, and if your debt-to-income ratio reveals that you are overburdened, then they may be willing to provide you with further credit. They may think that you are not capable of bearing the monthly EMI burden. However, it is not only owning several credit cards that negatively impact your score; closing your old cards might even impact your score. When you close your credit card, you tend to lower your thorough available credit. Until you lower your spending, this may negatively impact your credit utilization ratio, which is one of the major parameters used for calculating your score.
Delayed payments and non-repayments might negatively impact your credit history and might lower your credit score. Such activities show you are a credit-hungry individual who is not serious about making credit repayments in full. As an outcome, your score may reduce. Thus, your past repayment record plays a crucial role in building your credit score. Hence, ensure you pay all your debts on time. Even, ensure to monitor all joint and your single accounts periodically to make sure that zero payment is missed.
Misusing the higher credit card limit
While requesting to enhance your credit card limit is a good thing, as your CUR (credit card utilization ratio) may fall, it even encourages you to unnecessarily spend your available limit. Understand, an increment in your credit card limit does not mean your potential to repay the used credit has increased too. An increment in credit card limit just means now you may spend a higher amount only if you hold the potential the same back in full by the due date. Unnecessarily using the available credit card limit may push you towards a debt cycle, i.e., make it difficult for you to repay the borrowed amount. As an outcome, your credit score may decrease massively.
Having zero loans and holding multiple credit cards might impact your score. Many of you may also be there who have multiple credit cards with no single loan account. Such a scenario might impact your credit score slightly because of an imbalanced mix of credit. Holding a balanced mix of both non-revolving and revolving credits is the only way to have a good credit score here. Having a balanced mix of credit, i.e., a balanced mix between unsecured and secured credit, shows your diversity in managing distinct kinds of credits.
Avoiding the use of credit cards
Many of you are suspicious regarding the usage of credit cards. Mostly, you may think that the usage of credit cards might result in unnecessary spending and bad credit habits. So, you do not prefer using a credit card even while you possess one. This type of zero transaction on credit cards makes your credit file slightly inactive and might lower your score.
Failing to track your credit report
Failing to check your credit report might impact your score. At times, your credit report might contain slight faulty info owing to incorrect info or any delayed CIBIL reporting. This might lower your CIBIL score. So, it is recommended to review your credit history or report for any mistakes or errors at least every six months. You can also do this by fetching your credit reports online.
Even while the above-stated factors might impact your score and lower it, you still can effectively maintain it by monitoring your report periodically, repaying the credit card dues and loan EMIs on time, choosing to go for moderate credits, avoiding multiple credit cards, loans, and other new accounts, maintaining a good combination of credits, etc. Note that only if you maintain a credit score of 750 and above can you avoid loan and credit card application rejections by banks and other financial institutions.
Frequently asked questions linked with factors that impact your credit score
- Is it possible for the CIBIL to hold the wrong details about you?
Yes, there have been scenarios reported where individuals had their credit applications turned down despite having a good repayment record in the past. This may be because of lenders who provide incorrect info to credit bureaus which, with these details, generate your score. You can get this information rectified by connecting with the lender and credit bureau.
- Are employers seriously checking CIBIL scores?
Yes, there are certain employers who consider your CIBIL score as an indication of reliability and stability. Holding a strong score nowadays not just assists you in availing of a loan but even a job.