In order to obtain a good CIBIL score, you need to maintain a good credit history, the details of which will show up in your CIBIL report. The CIBIL score can therefore be compared to a grade or a rank based on how you have been servicing your credit.
Now that you know the link between your credit histories and credit score, you are naturally keen to do all you can to keep your CIBIL credit score as high as possible. But have you ever wondered what goes into the constitution of your CIBIL score? Here is a lowdown on the factors that have the greatest impact on your CIBIL score.
1. Your repayment history (35%): The first and most important thing that affects your credit score is your repayment history and accounts for 35 percent of your credit score. You need to clear all your bills and loan repayments well within the dates stipulated in order to maintain a good repayment history. Even a single default has a negative impact on your score.
2. What you owe your lenders (30%): There are two basic considerations when it comes to calculating what you owe your lenders -- referred to as credit utilization. First is the total of your credit card limits sanctioned to you and secondly the percentage of your money you are utilizing. Hence, your credit utilization ratio is calculated as the outstanding balance on all your credit cards as a percentage of total credit limits on all your credit cards. If your credit utilization ratio is high, your profile is considered to be "risky."
3. How long have you been servicing debt (15%): This may come as a surprise, but the amount of time for which you have been using credit also has an important bearing on your credit score. Therefore, if you have been servicing debt for a longer period and handling it responsibly, i.e., by making timely repayments, it will have a positive impact on your CIBIL score.
4. The amount of new credit you have taken or applied for (10%): Every time you apply for new credit such as a loan or credit card, the banks and other financial institutions run an inquiry on your CIBIL report to check your credit history and find out about your financial health and repayment capability. If there have been too many such inquiries on your CIBIL report, it has a negative impact on your credit score. This factor carries a weightage of 10 percent when calculating your credit score.
5. The mix of credit (10%): Even though our generation is primarily EMI-led, Indians are by nature averse to the idea of credit. So, if you have been avoiding credit and have only a single type of credit, especially unsecured loans like credit cards or personal loans, you cannot have a good credit score. This factor impacts 10 percent of your CIBIL score. To score high in this aspect, you must have a healthy mix of credit comprising secured and unsecured loans and be able to service them on time. Those with a mix of various credit types such as mortgage, personal loan, car loan, credit card, etc., are likely to score higher than those with a single type of credit.
Now that you know what contributes to your credit score, you can use this information to identify areas where you may be lacking and improve your credit score. A good credit score will ensure that you can obtain a loan without any hassles at the best interest rates when you truly need one.
Now that you know the link between your credit histories and credit score, you are naturally keen to do all you can to keep your CIBIL credit score as high as possible. But have you ever wondered what goes into the constitution of your CIBIL score? Here is a lowdown on the factors that have the greatest impact on your CIBIL score.
1. Your repayment history (35%): The first and most important thing that affects your credit score is your repayment history and accounts for 35 percent of your credit score. You need to clear all your bills and loan repayments well within the dates stipulated in order to maintain a good repayment history. Even a single default has a negative impact on your score.
2. What you owe your lenders (30%): There are two basic considerations when it comes to calculating what you owe your lenders -- referred to as credit utilization. First is the total of your credit card limits sanctioned to you and secondly the percentage of your money you are utilizing. Hence, your credit utilization ratio is calculated as the outstanding balance on all your credit cards as a percentage of total credit limits on all your credit cards. If your credit utilization ratio is high, your profile is considered to be "risky."
3. How long have you been servicing debt (15%): This may come as a surprise, but the amount of time for which you have been using credit also has an important bearing on your credit score. Therefore, if you have been servicing debt for a longer period and handling it responsibly, i.e., by making timely repayments, it will have a positive impact on your CIBIL score.
4. The amount of new credit you have taken or applied for (10%): Every time you apply for new credit such as a loan or credit card, the banks and other financial institutions run an inquiry on your CIBIL report to check your credit history and find out about your financial health and repayment capability. If there have been too many such inquiries on your CIBIL report, it has a negative impact on your credit score. This factor carries a weightage of 10 percent when calculating your credit score.
5. The mix of credit (10%): Even though our generation is primarily EMI-led, Indians are by nature averse to the idea of credit. So, if you have been avoiding credit and have only a single type of credit, especially unsecured loans like credit cards or personal loans, you cannot have a good credit score. This factor impacts 10 percent of your CIBIL score. To score high in this aspect, you must have a healthy mix of credit comprising secured and unsecured loans and be able to service them on time. Those with a mix of various credit types such as mortgage, personal loan, car loan, credit card, etc., are likely to score higher than those with a single type of credit.
Now that you know what contributes to your credit score, you can use this information to identify areas where you may be lacking and improve your credit score. A good credit score will ensure that you can obtain a loan without any hassles at the best interest rates when you truly need one.