Top 10 Factors Affecting Your CIBIL Score in 2021

20 Jan 2021 // 23 min read // Credit Cards
Author :(560 posts)

When you approach a lender, say a bank or a private finance company for a loan, they assess your credit score to determine your loan eligibility. Thus maintaining a good credit score is crucial for all individuals and businesses as lenders would not extend a loan if your credit rating is low.

Let’s first find out what exactly a credit score is.

A credit score is like ‘points’ which you are given when you repay your loans on time, service your loans punctually. It is a three digit number, a numerical representation of your credit history.

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There are four companies registered with RBI who are authorized to give out credit scores to the Indian borrowers. These are:

  • Credit Information Bureau India Limited (CIBIL),
  • Equifax,
  • Highmark,
  • and Experian.

Most of the times, it’s the CIBIL Score that is asked because it’s the most popular. A CIBIL score ranges in value of 300 to 900. However, for an individual who has never taken a loan before has a CIBIL score of -1 and someone whose loan has only a history of 6 months, has a “0” score.

As an individual pays off her loan instalments each month, the CIBIL score increases a little, but if he fails to do so on time and pushes the deadline frequently his CIBIL score decreases.

Now that you know what a credit score is and how it affects your creditworthiness let’s look at some of the benefits of having a high credit score.

A good credit score makes your loan sanctioning process a lot faster. When you apply for a loan, the first thing they look at is your credit score and since it shows your creditworthiness and your repayments history, it could either impress your lender or make him cringe with disapproval. A good score will also put you in a position to negotiate on high rates on various loans which could never be done with a low score.

Credit card eligibility is also a benefit. When banks look at an application for a Credit Card, the first thing they look at is the Credit Score just like in case of loans. When you have a good score, you will be provided with a credit card promptly.

Now, let’s break down the top 10 factors that affect your credit score in 2021:

1. Your loan repayment history is among the significant factors which affect your credit score. If you have been servicing your loan timely, it will possibly reflect on your credit score, and if you fail to do so, it is bound to draw your credit score low.

2. If you frequently reach above the limits on your credit card usage, your credit score will take the toll. Make sure you stay below the ceiling.

3. Your debt servicing period also makes a huge impact on your credit score at the time you calculate your CIBIL score.

4. Ratio of secured loans to the unsecured loans also matters. If a person has a more number of secured loans under his name than his unsecured loans, he has a higher credit score. If, however, his unsecured loans are more, compared to his secured loans, it will negate his credit score, overall getting to a low total.

5. Credit companies look at your history of Credit Cards & loans. If you frequently take loans and take more money on credit, your repaying ability becomes risky. This is noted by the companies, and they may understand that your creditworthiness has decreased, due to the burden you have out on yourself. Hence, you would negate your credit score.

6. A person who works for a friend’s liabilities increases their responsibilities, which does not guarantee the repayment of a loan. This makes CIBIL lower your score.

7. In cases where people are completely in debt which they cannot possibly pay, the banks may completely deny paying any loans to such individual. This condition of the individual would cost him his credit score too.

8. When you reduce the number of credit cards you have, you would reduce the total credit limit, you have on your name but your credit usage would increase in comparison to that credit limit which will make CIBIL decrease your score.

9. There should be a combination of credit and debt, which is a healthy one. If there’s only debt in the equation and no credit, then it reflects poorly on the credit score.

10. Not owning a credit card means that there are no credit transactions on your name. This again is a poor choice for your credit score. A credit card shows your ability to take credit and repay it.

11. All these factors help boost your credit score. So remember that you need to have high a credit score, if you want to take a loan from a bank or borrow money from a private money lending service. You need to manage a score which is as near to 900 as possible, which is the highest score on the CIBIL cycle.

12. In conclusion, remember that having a good credit score also empowers with a greater chance of negotiating a lower rate of interest and increasing the possibility of taking a faster loan than usual, which could save you a lot of time and energy. Moreover, it will help you remain in the good books of a bank, and they would come to you with offers that you wouldn’t be offered if you had a low credit score. It’s like the gold standard of the credit system, and you have to have a good one at it.

Also Read: 5 Tips to Improve or Fix Your Credit Score

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