You might have come across something called CIBIL credit score while you are seeking a loan or testing the eligibility criteria of different lenders.
It is vital that you review your credit score, understand what it really is, why it is so necessary to take a loan. Here’s all you need to know regarding the CIBIL Score and the factors affecting it.
A CIBIL score is now a major component that lets you gain access to financial products like credit cards and loans.
Lenders like banks and other financial institutions take your rating and other things like your salary, age and work stability into account, among many others.
TransUnion CIBIL credit office determines CIBIL scores by focusing on different factors like payment history, credit form, credit age and other factors.
The organisation creates the CIBIL report using this information relating to your credit activities. Your background of repayment and borrowing, unpaid loans, credit card payments, etc., are all collected by CIBIL and are included in your CIBIL report. It also includes details about your job history and loan enquiry.
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A CIBIL score is a quantitative measure of the credit repayment capability. It is a three-digit number which falls within the 300-900 range.
A rating nearer to 900 will get you good credit card and loan rates. Many borrowers such as banks and non-banking finance firms (NBFCs) favor a CIBIL score of 750 or above.
Also some companies have a their own commercial CIBIL ranking based on the financial history and credit report. Your credit score at CIBIL will continue to change depending on your credit report and credit behaviour.
For example, if you skip EMIs or make a quick series of 5 personal loan enquiries your credit score will drop. At the other hand, your CIBIL credit rating will rise if you pay your EMIs at time, pay in advance your loan or pay in full.
Factors affecting your CIBIL score
Each time an individual has a loan or credit, the lender is obliged by duty to inform the same with the CIBIL. The bank takes note as to whether an individual is repaying their debts on time.
If a person makes an attempt to pay back in advance, this will be considered a great sign. This means the individual can be trusted in repaying the sum he owes.
Drastic Increase in Credit
Any person who earns have a certain credit limit, whether for a loan or a credit card. Using the available credit, would show up as a greedy credit seeker and banks marks them as red flags. Whenever an person maintains a certain amount of credit for all the months and is found spending considerably more financially, this may lead to a drop in score
Debt to Income Ratio (DTI)
Lenders usually do not allow borrowers to take on more loans than about 40% of their income. Therefore, DTI is a calculation being used to estimate a loan applicant’s capacity to repay its debts on the basis of its earnings.
DTI is considered a good metric for inculcating financial discipline within oneself so that one can pay the future EMIs with no difficulty.
Banking officials are also concerned when a person has multiple loans, such as a home loan, personal loans, and vehicle loans in their name. Close one before going on to accept another is often a positive sign.