A financial institution, be it a bank or a non-banking finance company (NBFC), can reject your loan or credit card application even when you have a solid income and greater repayment potential to boast of. It’s because of the loan or card sins you may be committing or have committed in the past.
The sins would be like the bad habit of not paying the dues on time, heavy utilization of credit, revolving credit, etc. All these bad habits lead to a poor credit score, which becomes the point to check your creditworthiness. The credit bureaus that undertake the task of assigning the scores include the biggie CIBIL, Experian, and a few more.
Of the bureaus, CIBIL is preferred more by the lenders while approving or disapproving a credit application. Whenever digital marketing professionals like us check the queries online, often the word that comes across is Free CIBIL Score. Yes, you can check CIBIL score for free but only once a year. More than one check would cost you ₹500 and more. But there’s much to know beyond CIBIL score. What are they? Let’s find out in the article.
CIBIL Score and Its Importance
CIBIL score, which you get online, ranges from 300-900 in India. Anyone with limited knowledge can say, the more you score better it is. Although correct to a degree, you need to go into the specifics of a score to know its implications the best way. Actually, the desirable CIBIL score would be 750 and more. Most lenders would okay your case once you attain such a score. In times of aggressive marketing campaigns, even scores below 750 can be approved for a loan or credit card. However, you may have to deal with a not so attractive loan offer. Either the interest rates may get higher or the loan amount would lessen.
Reasons for Up and Down in Your CIBIL Score
The score can go up and down owing to your ongoing or past repayment record. Let’s check out the aspects on which your CIBIL score is calculated.
#1. The pattern of Loan or Credit Card Payment – The pattern of debt repayment goes a long way in building a credit history for you. Now, the pattern can have different connotations. While one could infer it as the schedule of payment, others would mean it as the ways by which the debt is repaid. Firstly, the loan EMIs or card dues, whatever is the case, must get paid on time. If not done for a fair number of months, the score goes down rapidly. On the other hand, a disciplined repayment track can take the score up by notches.
#2. Minimum Due Syndrome – Using a credit card for shopping? You must have come across ‘minimum due’, a term used in a credit card statement. The minimum due is calculated at 5% of the total outstanding balance in a particular billing cycle. Obviously, it comes a lot shorter and affordable. But keeping a practice of paying the minimum due month by month can lower your CIBIL score even though there won’t be any late payment charges for paying the same on time. Now, the minimum due would be much more prompting if the total due is well out of your reach. So, you need to know what your budget is and how much you can repay. It will help shop better and keep the bills under control so that you can pay off without having to disturb your wallet.
#3. Credit Utilization – Often one bumps a lot of credit and that too unnecessary while shopping via a credit card. The impulsive spend urge is often fulfilled with the purchasing power of credit cards. And as a result, you bump out more credit that you would do otherwise. Excessive credit limit utilization puts you in a spotlight for all the negative reasons. It’s because the chances of default loom with such a utilization. And in turn, your CIBIL score goes down. Ideally, the credit to be used must not exceed 50%-60% of the limit offered.
So, keep these cardinals in mind to raise your CIBIL score over time. Budget your expenses in accordance with your income and repayment capability. This will enable a smooth repayment and help you get a good credit score.