A CIBIL score is an important factor that measures your creditworthiness. It is taken into consideration by banks or financial institutions
when you apply for a home loan or other credit products such as car loan etc. A loan can be a type of unsecured loan
or secured loan.
Loan has of short- or medium-term period (Example car loan – from 5 to 7 years or housing loan which may vary from 10, 15 , 20 or 30 years). Personal loan is a type of unsecured in nature, you did not need to provide any kind of security. However, Financial institutions such as banks need to check your credit health and make sure that you have the ability to repay the borrowed sum.
Hence, apart from the general eligibility criteria you that you will be required to fulfill, you will also need to have a good CIBIL Score for your loan application to be approved.
1. Check your CIBIL score:
It is important for you to know about your credit health before applying for a any kind of loan. Applicant should check CIBIL score as it will give him an idea of where he stand in terms of your credit history and repayment. If CIBIL score is low, you can take time to work on it and gradually increase it by taking the right measures.
2. Get your CIBIL report for free:
Applicant can visit the official website of CIBIL and make claim for free report if he or she haven’t already this year. Reserve Bank of India made it mandatory for all the credit bureaus in the country to offer one credit report for free per calendar year. In addition, Applicant can also buy your CIBIL report for a one month, six months, and one year.
3. Browse and shortlist Banks or Financial Institution:
Once you have decided to take a loan, you will need to look for Banks or financial institutions that are offering good deals on their loans. It is better to browse for deals and select one that is most favorable to you. As a result of high competition, many banks are offering competitive interest rates on loans. Look out for the best deal that will offer you maximum benefits in terms of interest rate and tenure and fringe benefits such as processing fee waiver.
A good credit score helps to get quicker approvals for your loan applications. It is an important factor that helps banks and non-banking finance companies (NBFC) to decide whether or not you are in a position of repayment of the loan. A credit score is a summary that indicates your loan repayment behaviour. Credit score represents your credit worthiness and higher the credit score, better the chances of you getting a loan. Therefore it is necessary to maintaining a healthy credit score is of utmost importance. Here are few of the top factors that affect your credit score.
Factors which affect your credit score
1. Loan Repayment History:
Repayment history of previous loan taken, is one of the key factors that decides your credit score. It accounts for almost 35% of your total credit score, It is extremely important that you pay all your bills on time and have a consistent payment record. You should never default on your bill payments as it will have a negative effect on your credit score.
Late payments of bills and previous loan emi’s also get marked down on your credit report. Make sure to pay your bills every month to improve and maintain your credit score. If you do not have a good repayment history, banks and NBFCs will consider you incapable of handling credit.
2. Amount of Debt :
The amount of debt on you accounts for 30% of total credit score. Always be aware of your current status of wealth and take only that amount of credit that you can repay. Taking excess credit that you will not be able to manage shows that you are credit-hungry. Maintain a low credit utilization ratio which is basically the total balance you owe and your total credit limit on all your accounts. You should ideally use 30% or less of your credit limit.
To Having a higher debt can bring down your credit score. It must be noted that you can pay off your debt at any point of time. Give importance on minimizing your debt as it will help in increasing your credit score.
3. Age of credit history:
The age or length of your credit history accounts for 15% of your total credit score. Age duration of credit history is the number of years that have passed since you opened your first credit account. Credit bureaus like CIBIL consider the average number of years for which you have been holding a credit account.
Moreover, it also takes into consideration the number of years that have passed since you opened your first credit card account. Having a long term credit age is better for your credit score as it shows that you have a lot of experience in handling credit.
4. Type of debt:
Debt is classified into secured and unsecured. It will help you to boost your credit score if you have a healthy mix of both the type of debts. This essentially means it is good to have a car or home loan as well as a credit card. Varying the loans you take will also positively impact the credit score. This indicates that you have a decent experience in handling different types of accounts
5. Credit inquiries:
The number of applications an individual makes to avail credit are reflected on the credit score. Each time an enquire about a loan, an inquiry is placed on your credit report. Additional requests always reflect poorly on the Credit score as they make you seem credit greedy. Credit inquiries account consists for 10% of your total credit score.