A credit score is a 3-digit number given by the CIBIL, which shows your credit history. Whenever you place an application for a loan, lenders require your CIBIL to evaluate all your debts and your repayment history to know your creditworthiness. A strong credit score shows that your finances are in order, and you hold an excellent track history for all your past borrowings. Moreover, it assists you in getting the approval for a loan at the best rates. However, a poor credit score works vice versa and can lower your creditworthiness.
How is your CIBIL score computed?
Various parameters form your CIBIL score and, depending upon the same CIBIL score, are computed:
Your repayment history
Timely repayments for the past and existing debts impact your credit score in a positive way and result in a high score. On the contrary, delayed payments reduce your credit score and make availing of loans tough for the future. Having a strong repayment history shows that you are repaying your dues timely, and this makes lenders trust you for the new borrowings. As an outcome, an application for a loan with a good credit score always gets approval.
While delayed payments result in late payment fees, penalties enhance the overall amount that you must pay. So, to avoid such a consequence, you must repay your loan within time, and this will even assist you in maintaining a strong credit score.
Multiple loan applications
When you are searching for any kind of loan, applying for the application many times with distinct lenders can result in hard enquiries on your cibil report. This moreover impacts your credit score. So, it is best to review your credit score before you place an application for a loan. Doing so assists you in understanding your loan eligibility, and you must thus apply just with the bank lenders who best fit your eligibility parameters. Also, this lowers your loan rejection chances and ensures loan approval.
Kind of loan availed in the past
Opting for multiple loans enhances your debt-to-income ratio, and in the case of unsecured credit options, it is negatively viewed anyway. Thus, in case you have applied for several loans in a short duration of time or have multiple credit cards, then it can make you appear as a credit hungry individual, and lenders might hesitate to lend you in such conditions.
Write-offs impact your credit score on a massive level. Additionally, current write-offs impact your credit score more negatively than the older ones. To avoid such an impact, it is crucial to check your credit score before you apply for the loan. Doing so will endow you with a fair idea as to whether your loan application will be approved.
How can you form your CIBIL score?
An individual with zero borrowing records has no negative CIBIL score. It is not thought to be good because lenders do not have a record of depending upon the loan seeker. So, in case you want to avail any loan in the near future, ensure to eliminate the hassles that you may need to build a credit record. Important steps to form a credit record include:
Apply for the credit card
Applying for the credit card and using it helps form your credit report in your name. However, before you go ahead, you must remember that credit cards come with high-interest rate costs. And for you to maintain a healthy financial record, you must timely repay your credit card bills.
Avail a small amount for your personal loan
Availing a small amount of personal loan or unsecured loan also assists you in forming a credit report. However, for you to record a positive trajectory of your credit score, you must timely repay your dues. Moreover, you must ensure to close all your loan accounts by going for pre-payments as the rate of interest levied for the unsecured loan option is high. Besides these, it is also crucial to review your score once in 6 months. Doing so will assist you in simply rectifying your errors and incorrect reporting, if any, on your credit report. In the case you figure out any, you must report this to the CIBIL bureau or can also write to the bank lender.
Having knowledge about your credit score is important whether you have a credit score or not. A credit score is a three-digit credit number generated by the TransUnion CIBIL based on your past credit info. This ranges anywhere between 300 and 900. A minimum credit score of 750 is a must for a successful loan or application for a credit card. Higher your credit score, the simpler it is for you to get an extended credit line from the bank.
CIBIL score is important when it is to credit application approval. Also, if you report any dispute linked with the CIBIL score, then you can check your CIBIL dispute status easily by approaching the CIBIL bureau. Checking your score is a mandatory process to see if your finances are in order. The score assists in deciding your credibility to the bank, which in turn helps you to avail loans faster without hassle.
When you place the application for a credit card or loan at the bank or financial institution, the initial thing the lender checks for is your CIBIL score or credit rating to decide your eligibility for a loan. Thus, as mentioned previously, if your credit score is strong, the lender will take up your application into consideration and move ahead with approving your loan application.
Besides credit approval, read on to know how CIBIL can impact the financial processes linked with an individual:
∙ Housing loan: As the CIBIL score is the basic factor for loan application disbursement, it is crucial for you to have a great score to an avail housing loan or other loans linked with the home.
∙ Rate of interest: A strong credit score assists you in getting the best rate of interest and a suitable condition for your loan repayment. The higher your credit score, the lower your rate of interest.
∙ Other crucial applications: Excellent credit score not just impacts your potential to avail big-ticket loans at a lower rate of interest, but it even assists in availing approval for your consumer durable loans to purchase gadgets and other electronics.