​Did Your Credit Score Just Change? Know Here Why. 

by Olivia Anderson

A credit score is a crucial parameter that assists you in getting accessibility to different credit options like credit cards and loans. Lenders like banks and other financial institutions factor in your credit score and other crucial parameters like your age, income, job stability and others. 

What’s a CIBIL score?

CIBIL score is nothing but a numerical representation that indicates your potential to repay the borrowed credit. This is a 3-digit numerical digit that falls anywhere in the range of between 300 and 900. The closer your score is to 900 better your chances of securing a loan and credit card. Note that the minimum credit score for credit card or loan approval is 750. If you hold a credit score below 750, you may have a lower chance of securing a loan option. For instance, suppose you want to opt for the SBI credit card; however, to be eligible for an SBI credit card, CIBIL score you must hold is 750 and above. If you fail to hold this score, then creditors may not offer you this card to you. 

Who computes your credit score?

TransUnion CIBIL bureau computes your CIBIL score post considering various parameters involving credit type, payment history, credit age and other parameters. 

What are the parameters that impact your CIBIL score?

Let’s have a look at certain crucial parameters that may impact your CIBIL score in a negative way – 

Not repaying EMI dues or loan EMIs on time – 

Your repayment history has a massive influence on your credit score. It is crucial to repay your credit card dues and loan EMIs timely in full. According to the CIBIL analysis, thirty-day delinquency may lower your credit score by around 100 points. If you hold multiple credit cards and loans, it is recommended to set up alerts and reminders to avoid delay or missing out on repayments. Any missed loan or credit card payment reflects poorly upon your credit score and shows that you are inconsistent with repaying the borrowed credit. 

Also Read: SBI Credit Card CIBIL Score

High CUR (credit utilization ratio) –

One of the major rules you must adopt is to keep a thorough watch on the CUR (credit utilization ratio). It is the credit amount used in proportion to the credit card limit that is made available to you. As per experts, you must ideally not exceed using 30 per cent of your credit card limit. For instance, if your credit card limit equals Rs 1 lakh, you must spend nearly Rs 30,000. In case you use more than 50 per cent of your credit card limit, it may create a negative impact on your credit score. Having a high exposure to credit will send out red flags to lenders because this shows you are at an increasingly higher risk of committing a loan default. 

Outstanding debt – 

You must always ensure to clear off all your outstanding dues. When you have any unpaid dues reflected on your credit report, it often takes a toll on your credit score. It is recommended to repay your outstanding dues in full, even if your loan amount is small. 

Paying just the minimum due amount –

A minimum due amount is the small portion of the principal that is outstanding each month. You can fall into a debt trap in case you continuously pay just the minimum due amount. Rolling over debt by repaying just the minimum outstanding amount results in interest compounding on the outstanding balance. Thus, it is recommended to pay your credit card dues in full. Also, it shows your poor repayment capacity. 

Making several credit applications –

When you place an application for a credit card or loan, lenders often want to check out your credibility, and they do so by fetching your credit report. It is known as a hard inquiry. If you send multiple credit applications, it may mean that multiple credit inquiries may be happening around at the same time. Such hard inquiries are reported and impact your credit score in a negative manner. This even makes you appear credit hungry. 

If your credit card or loan application has been turned down currently, it is recommended not to place an application for credit instantly. It is better you ameliorate your credit score and then place an application for credit again. 

Mistakes in your credit report –

Your credit report contains detailed records linked with your present and past credit accounts. If there are any kind of errors in your credit report, it may negatively impact your credit score. So, if you see any form of discrepancies in your credit report, ensure to report them instantly for immediate correction. Such errors must be corrected by banks’ lenders only. This is because CIBIL cannot rectify the credit report till the bank points it out. Also, checking your report may even assist you in figuring out any identity theft happening to you. 

Not have a balanced credit mix – 

It is crucial for you to maintain a good balance between unsecured and secured credit options. Secured loans include home loans and auto loans, while unsecured loans are credit cards and personal loans. If you hold a high number of just one kind of credit option, it may impact your credit score. Also, when you opt for a healthy credit mix, it suggests you have experience managing both kinds of loan types, i.e., secured and unsecured. It is considered highly desirable by lenders. 

Length of credit history –

Credit history is the overall number of years you have passed since you held your initial credit account. If you hold a long line of credit history, it assists banks in taking better decisions when reviewing your credit request. It is better to concentrate on forming your credit history in earlier life stages. This is because, by the time you place an application for an auto loan or home loan, you may have a strong credit record. Having a strong credit record may mean higher chances of loan or credit card approval. 

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