A credit score is a number that evaluates your creditworthiness and it is based on your credit history. Lenders get an idea on your repayment ability, through the credit score. CIBIL gives you a credit score ranging from 300 to 900 and you must have a credit score of at least 750, to get faster loan approvals.
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These are some of the factors that impact your credit score:
Not paying your credit card dues and equated monthly instalments (EMIs) on time, will hurt your credit score. Your credit history will show how long your loans are unpaid, after the due date. Even if you miss a single payment, it will be reflected in your credit score.
If your credit score is affected by late payment of credit card dues, make a habit of paying credit card dues on time. To evaluate credit history; number of loans availed, EMI repayments and credit card bills will be considered. Other household bills and utility bills are not taken into consideration.
SEE ALSO: 4 Common Myths On Cibil Score
Having a high credit utilization ratio will hamper your credit score. Credit utilization ratio refers to the amount of debt you utilize, compared with the amount of credit limit you have. If your credit card limit is Rs 1 lakh and you have utilized only Rs 50,000, then credit utilization ratio will be 50%.
Lower credit utilization ratio, will help you to increase your creditworthiness. Usually, lenders and credit card companies want loan applicants to have credit utilization ratio of less than 40%. You can improve your credit utilization ratio by paying credit card bills regularly and by not over-utilizing your credit limit.
Increasing credit card limit frequently is not a good idea. Even though an increased credit card limit allows you to spend more now and pay later, this can affect your credit score. Increasing the credit card limit frequently is a sign that you depend on credit to manage expenses and this is not a good sign. Lenders will not be happy to give you loans.
Not having a credit history can make it difficult for you to avail loans. The reason for this is your credit score is determined on the basis of your credit behaviour, loan repayment history and credit utilization limit, along with other factors. If you have not taken loans in the past and do not have credit cards, it will be difficult for lenders to know your repayment capacity.
If you default on loans, it will be reflected in your credit report. This will harm your credit score and creditworthiness. If a default is shown in your credit report, you should settle the loan and make sure that closed status is shown. You need to collect a formal closure certificate from the lender. Be Wise, Get Rich.
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