Credit scores are assigned by Credit Information Bureaus which maintain credit histories of people as provided by registered credit companies. Credit Information Bureau India Limited or CIBIL is the primary credit information company in India. It was founded in the year 2000 and since then has played a critical role in the financial scheme of the nation.
What is a Credit Score?
Credit score is a distinct number assigned to each individual based on an analysis of his/her credit report. Credit scores depict the creditworthiness of a person. A high credit score is indicative of a good credit history and hence, is preferred. A good credit score signifies that a person repays his credit on time and this in turn aids in availing loans faster and at lower rates.
Credit score for any individual can lie anywhere between 300-900. A score of more than 700 is generally considered good while anything below that is not preferred by banks. Data indicates that loan applications are generally green for customers with a score of 750 and above.
A bad credit score, can ruin your chances of acquiring credit at good rates and sometimes acquiring credit itself can become a tough nut to crack.
Factors that negatively affect your credit score
There are many factors that make or break your credit score. Some of them have been highlighted below.
- Payment history and the number and frequency of payment defaults or delays
- Total amount of debt held by you at any point of time
- Types of credit that you have availed e.g. personal loans, car loans, credit cards etc.
- Number of new credit requests made to different lending entities
- Utilization of your credit limit i.e. the amount of available credit that you have used
Ways to increase your credit score
A credit score is something that you just cannot ignore; especially if its bad. It is always good to look for ways to improve your credit score since this is essential for availing smoother and cheaper credit. Listed below are some of the most effective ways of improving your credit score.
To Know More About : Top CIBIL Improvement Factors
Make timely payments on bills: Even if your credit score is bad currently, you need to be extra vigilant and prompt in paying off your credit card bills and other utility bills on time so that your credit report does not show any major defaults.
Make online payments keeping in mind the time your transaction might take. While paying by cheque, ensure that you drop the cheque a few days before the bill due date. This will ensure timely payment even in the face of infrastructural delays which cannot be controlled.
Abstain from too much credit: These days it is a common thing to receive calls and emails from various banks/financial institutions that offer free credit cards. Sometimes, we are of the view that owning multiple credit cards will make our life easier. Balance transfer and other card benefits are supposed to make our life financially flexible.
However, what many people do not understand is that owning too many credit cards shows we are hungry for more credit and as such lowers our chances of receiving additional credit when it is actually required.
Also, multiple credit cards make it difficult for a person to track payment due dates and as such enhance the chances of default and late payment.
Wise use of credit cards: Credit cards are a great financial tool to own. They provide us enough credit for all our necessities and let us avail exclusive benefits too, like reward points and air miles. Credit cards also enable us to roam cashless without worrying to stop at every other ATM.
However, all these benefits apply only if these cards are used wisely and optimally. Going beyond your credit limit every month is a bad move. Also, closing a credit card suddenly isn’t a good idea unless you obtain a NOC from your credit provider.
Avail a right mix of secured and unsecured loans: Unsecured loans like personal loans and car loans generally negatively impact the credit score of a person. Secured loans like home loans, on the other hand, are invested towards asset creation and impact your credit score positively. Hence, you should try to minimize the unsecured component of your credit portfolio so as to influence your credit score positively.
Check your credit report: In case you have a bad credit score, the first thing you should do is obtain a copy of your credit report by applying for it on the CIBIL website. This can then be analyzed to check if all the information in your name is correct and up to date. If not, then report it to CIBIL immediately so that your credit score isn’t negatively impacted. When making payments on time or rectifying defaults and delays, ensure your credit card issuer or bank records and reports this to CIBIL.
Avoid applying for too many loans: When you apply or enquire about loans from multiple banks, an enquiry is made. With more banks tapping in to find out your credit score. This in turn shows that you are desperate for credit. Whenever an enquiry is made with CIBIL, it reflects on your credit report. The more the number of enquiries, the more your credit score dips. So a good way to improve your credit score is to keep your enquiries to a minimum and obtain a copy of your score personally. Once you know your credit standing and if it is below expectation, prepare to have to pay higher rates on loans. Seek out those banks that will lend you money at the most affordable rates rather than approaching multiple banks.
A Guide to Manage Your Finances
Maintaining one's finance is of utmost importance for anyone. It helps you to achieve your future goals as well as lead a life peacefully. But unknowingly, in spite of trying your best, your finances are messed up and that lends you in trouble in day-to-day life as well as while applying for a loan or credit card. Here are the few aspects that can definitely guide you to have control on your finances.
- Plan your Budget: Everyone should be realistic as well as grounded when it is about managing your finances. Spending smart as per your monthly salary is vital to avoid the risk of being in debt. Also when you plan to shop make a list of items and figure out whether buying or spending that much amount will be feasible. All these precautions can really help you increase your savings.
- Validate your Credit Report: Monitoring Credit Report on a regular basis is important. Avail your CIBIL report or subscription based report as it enhances your credit score dramatically. Credit report explains all the factors in detail which increases or diminishes your credit score. Knowing your faults can help you to avoid repeating them and later result in building a good credit report. You can also avail the free CIBIL score to know your current financial position.
- Reduce your Pending Amounts: Paying all the bills on time is important as it proves positive for your credit report. Clearing the outstanding amount on a monthly basis reduces the burden in future months. This can boost your financial position.
- Upgrade your Financial Knowledge: Everyone wants to enhance their savings. But many are not clear about the points that can dramatically impact ones financial hold. A good knowledge on credit report, interest deductions, and factors that boost your credit score can really help the credit score to go up.
How to Improve your CIBIL Score Immediately
A CIBIL score is a numeric representation of an individual’s creditworthiness. It is a three-digit number in the range of 300-900 that represents your creditworthiness. It is calculated after considering your credit history and repayment behavior. A CIBIL score of 750 and above is considered as ideal. Here’s how you can improve your credit or CIBIL score immediately.
- Pay bills on time: Payment history accounts for 35% of your CIBIL score. Therefore it is important to pay all your monthly bills on time. Avoid delaying your payments as it negatively affects your CIBIL score.
- Pay off your debt immediately: If you have any unpaid dues, clear them off at the earliest even if they have been delayed for a long time. Missed payments on your credit cards will keep reflecting in your credit history until you pay them off completely.
- Maintain a low credit utilisation ratio: It is advised to not exhaust your entire credit limit and not spend over 50% of your credit card limit. The credit utilisation ratio accounts for 30% of your CIBIL score.
- Don’t close old accounts: Do not remove or deactivate old accounts as it may harm your score if you have a good repayment history. Your old accounts could have a long credit history and deleting them will negatively impact your credit score.
- Always make full payments: It is important to pay the entire bill amount. Do not pay minimum amount due on your bills as it will reflect badly on your CIBIL score.
- Hard enquiries: When a lender or a bank checks your CIBIL score, the enquiry is termed as a hard enquiry. Multiple number of hard enquiries can bring down your credit score. Hence, make sure to limit the number of hard enquiries.
Quick facts on credit score
- Availing services of a credit repair agency isn’t a good idea since they cannot edit or remove any information from your credit report and as such have no control over your credit score.
- Your credit information is sensitive and confidential and should not be shared freely.
- CIBIL isn’t authorized to make changes to your credit report independently. It only records the only when authorized by the concerned financial institution can CIBIL make such modifications.
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