When it comes to loans and other financing options, your CIBIL Score is the foundation for your financial potential. You should keep in mind that each lender has its own set of rules that they follow when lending you money, and these rules vary from one bank to the next. However, there is a lot of overlap in the majority of situations. The CIBIL Score is the common thread that runs through all of them, no matter how different they are. It’s your CIBIL Score, which every lender checks at least once to analyse you and your repayment capability, as well as your payback history.
What is the CIBIL rating?
The CIBIL Score is a report card that the CIBIL Agency issues about your financial history. The CIBIL Score is based on a maximum score of 900, with scores ranging from 300 to 900. The CIBIL score should be as close to the maximum as possible. This CIBIL Score is a reflection of a person’s credit history, and it is based on a number of criteria that will be covered later in this article.
What effect does the CIBIL Score have?
The CIBIL Score is a clear indication of a person’s financial history and, as a result, of how trustworthy they are in terms of financial repayment capabilities. The person must achieve a good score in order to instil confidence in the lenders that their loan will not default. The closer the CIBIL Score comes to the 900 threshold, the better. With a higher CIBIL Score, you can get better loan terms and have a lower probability of having your loan application denied.
What influences the CIBIL Score?
There are various aspects that contribute to the CIBIL Score, and these factors are the most important in determining whether the CIBIL Score improves or declines. If you have a low CIBIL Score and are seeking strategies to raise it, you must first understand what elements are important in calculating the CIBIL Score and how the CIBIL Score is determined.
- The applicant’s payback history is as follows: This is a vital factor to maintain a good CIBIL Score, with a total weightage of roughly 35 percent in the calculation of a person’s CIBIL Score. In truth, a person’s payback history reveals a lot about how things have gone in the past, with the individual owing a variety of payments and dues.
- The credit balance available with the applicant: This is the second most important factor in determining a person’s CIBIL Score, with an overall influence of roughly 30%. The credit balance shows how much credit you have available and how much you need it. The credit balance is computed by taking into account two factors: the credit limit and the credit utilisation. The credit limit is the amount of credit available to you or sanctioned to you, whereas the credit utilisation is the amount of money left over after you’ve used up a portion of your credit limit. Thus, the term ‘Credit Utilization Ratio,’ which reflects how much of your credit card and other dues balance is outstanding?
- The amount of time you’ve utilised credit for is: Another key component that contributes 15% to the CIBIL Score calculation is the total amount of time you have utilised credit. This is an indication of how responsible you are when it comes to handling loans and other payments.
- Whether it’s a new credit application or a liability: In the calculation of a person’s CIBIL Score, this element contributes a total of 10%. The more credit applications you submit, the more it appears that you are in need of credit, lowering your CIBIL Score.
- Credit mix: With a considerable percentage of 10% in the CIBIL Score computation, Credit mix is an indication of how much mix kind of credit you have available to you. Mixing different types of credit, such as unsecured and secured loans, can help you in how to improve CIBIL score.