Major Factors Affecting Your CIBIL Score

CIBIL Score, a credit score calculated by the most popular credit bureau (Transunion CIBIL), is the prime factor that helps a lender in determining whether or not an applicant should be granted credit. It is used to measure an individual’s creditworthiness. It is basically in numerical form that ranges between 300-900. Any score above 750 is considered a good score by any bank or financial institution to provide loans or credit cards to an individual. On the other hand, a low CIBIL score lessens your chances of getting credit. A CIBIL score is made up of so many factors such as payment history, credit exposure, type of credit, etc which have their individual weightage in determining the score. These are the major factors affecting CIBIL Score and any carelessness in maintaining any of these can lead to a drop in your score.

Major Factors Affecting Your CIBIL Score

In this article, we are going to discuss all such factors, if not handled carefully, can have a negative impact on your credit score :

Delayed Bill Payments

The first and foremost factor that affects an individual’s credit score is payment history. 35% of an individual’s CIBIL Score is made up of the repayment history. Delay in paying your bills and EMIs on time can have a great impact on your credit score. Your credit score will be decreased if you do not pay your bills on time. Therefore, to protect your credit score from falling, you should pay your bills on time, For this, you can set up reminders on your phone, so that on the due date or a day before, you get notified about the same. Also, you can avail of the facility of auto-pay by which your bill amount will automatically be deducted from your savings account and will be credited to the credit card account. By following these ways, you will not miss paying your credit card bills and your CIBIL Score will remain unaffected.

Paying only the minimum due amount :

The minimum due amount is a small portion of the total billed amount each month. Interest keeps on accumulating on the outstanding amount if you pay just the minimum amount. It becomes difficult to pay off the whole amount as it becomes huge if interest keeps on adding to your outstanding bills. Hence, by following this routine, you will soon fall into a debt trap and it becomes very difficult to get out of one if you become its prey. This portrays your negligence towards the debt you own and depicts your poor repayment behavior. Hence, it is very important to repay your bills in full and on time if you do not want a negative impact on your credit score. If you are not able to pay the full amount, you can the maximum amount that you can, which should obviously be higher than the minimum due amount.

Suggested Read: How Much Should You Pay on Your Credit Card Bill?

High credit utilization ratio

The credit utilization ratio is a percentage that shows how much credit you have used out of the total credit limit available to you. It is ideally prescribed to keep this percentage below 30%. For example, The credit limit of your credit card is Rs. 2 Lakhs. Hence as per experts, you should consume only 30% i.e., Rs. 60,000 of this available limit. A low credit ratio should be maintained if you want a better credit score. The higher percentage of credit utilization ratio shows your over-dependence on credit and if you are not able to repay the debt amount on time, it depicts that you are unable to handle the credits responsibly hence puts a negative impact on your credit score. Hence, a low credit utilization ratio should be maintained for a better credit score.

Multiple credit card applications

Any bank or financial institution will generate your credit report to check your credit score before approving your credit card request. This type of inquiry is known as a hard inquiry. Your credit score decreases every time such type of inquiry takes place. Therefore if you have placed credit card applications with multiple banks, multiple hard enquires will take place which will make your credit score fall drastically. Hence, we should avoid placing multiple requests at the same time. Also, if your credit card application is rejected by one bank, do not rush to place an application with the other bank. Take time to first improve your credit score and then place an application for a credit card.

Other Things To Keep in Mind

Other than the major factors mentioned above, the following are some additional points that the credit cardholders should keep in mind in order to maintain a good credit score:

Increased Credit Limit

The increased credit limit is also a major factor that will affect your credit score. With an increased credit limit, you tend to spend more through your credit card. With the income pattern remaining the same, it would get difficult to pay for the bills occurring due to overspending because of an increased credit limit. Also, a request for increased limits might show your dependency on credit cards which is not a good sign when determining an individual’s CIBIL Score.

Errors in CIBIL Report

CIBIL Report carries the details of all your current as well as previous credits. Any errors in this report will lead to a fall in your credit score. Hence you should take care to thoroughly go through the credit reports and get the discrepancies in the credit report rectified.

Bottom Line

As discussed, CIBIL Score is the most important factor that is used for determining whether an individual is enough creditworthy that he should be granted any credit or not. As a low CIBIL Score will decrease your chances of grabbing a decent credit card, a good CIBIL score will open various options for you in terms of better credit cards with advanced features and benefits. But to avail of better credit opportunities, it is very important to have a good credit score, generally above 750. There are various factors affecting CIBIL Score, which, if not handled in a responsible manner can ruin your credit score. Factors such as payment history, credit utilization ratio, credit card inquiries, etc are considered very important while calculating an individual’s credit score. Hence, it is quite important to take care of these factors to have a good CIBIL Score as it works amazingly in establishing your strong financial capability among the lenders.

Also Read: 7 Ways to Increase Your Credit Score