If you have ever taken a loan or a credit card, then you too must have come to know about the credit score. Whether you go for any loan or credit card, there is a great need for this score. It is also known as CIBIL score. Good credit score gives leverage in case of loan. Be it personal loan or credit card or home loan, everywhere bank or finance company verifies CIBIL or credit score. In such a situation, it is important to know what is a credit score and how it is calculated.
This is how the score is prepared
Credit bureaus like TransUnion CIBIL collect details of your transactions related to loans and credit cards from banks and other financial institutions. Credit report and CIBIL score is prepared on the basis of this information. When applying for a loan, banks ask for your credit report and score from the credit bureaus. Through this, the bank assesses whether you can repay the loan or not. In simple words, it tells the bank about your financial creditworthiness.
Understand credit score like this
Credit score ranges from 300 to 900. The closer your credit score is to 900, the better are your chances of loan approval. Generally a credit score above 750 is considered good. A score between 550 and 750 is considered good, ie average, while a score below 550 is considered poor, ie low credit score. Banks can refuse to give loans or charge higher interest rates if the credit score is bad. Apart from the credit score, there are many other factors that work in the matter of loan.
These factors have an effect
The calculation of CIBIL score depends on several factors, such as how is your repayment history? Means whether you pay EMI or credit card on time or not. The second is credit utilization. Credit utilization means how much you use the credit card limit. The more you use the credit card, the higher the credit utilization ratio (CUR). This shows that you do not have control over your credit hungry behavior and spending. Credit score is affected by high credit utilization. Even if you make too many inquiries or applications to take a loan, your CIBIL score will be affected.
Improve bad credit score like this
You can improve your CIBIL score by maintaining a good credit history. For this you have to follow some steps. Make loan EMI or credit card payments on time. Delayed payment has a negative impact. Use credit limit with care. Keep credit utilization below 30% of the credit limit. Avoid applying for multiple loans multiple times or at the same time. Apply only when absolutely necessary.
Be sure to keep these things in mind as well
Maintain a mix between secured loans like home loans and auto loans and unsecured loans like personal loans or credit cards. Having more unsecured loans is considered negative. If you are a guarantor, co-borrower or joint account holder in a loan account, keep an eye on it. If your partner misses any payment, then you are also equally responsible. His negligence can affect your ability to take the loan.
it doesn’t matter
Check CIBIL score and credit report from time to time. Frequent checking of CIBIL score will not affect your credit score. However, if a bank or financial institution checks your credit report, it is considered a ‘hard enquiry’. Too many hard inquiries can affect the credit score.
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