What affects your CIBIL score? 10 key factors you need to know

When you apply for a loan or a credit card, banks check several factors to approve your request. One such factor is the CIBIL score. It is one of the key parameters to determine your eligibility for a loan or a credit card. This three-digit number reflects your creditworthiness. Banks check CIBIL scores to determine the terms of the loans and approve your request for a loan or a credit card.

A high CIBIL score will help you get your loan and credit card requests with better interest rates. Having a CIBIL score in the range of 750 to 900 is considered to be a good score, according to BankBazaar. However, having a low credit score may lead to either unfavourable terms on your loan or rejection of your application.

Top 10 factors that affect CIBIL score

1. Payment history: Your credit history has the biggest influence on your CIBIL score. It is a summary of your borrowing and repayment transactions, that reflects whether you are paying your dues on time. If you have missed any payments, it affects your score negatively as it shows that you are not regular with repayment. Lenders feel that you are a reliable borrower. Therefore, it becomes important to timely clear dues.To make payments on time, set reminders to avoid missing on due dates.
2. Credit utilisation ratio: This ratio shows the amount of credit used in relation to the credit limit provided by the bank. Having a low credit utilisation ratio reflects a smaller portion of your total available credit being used. In such a scenario, banks feel that you are managing your credit well. However, a high credit utilisation ratio highlights more dependency on credit. This ratio is a key factor in calculating the CIBIL score.

3. Clear off dues: Make sure to pay all your dues on time. Failing to do so will negatively impact your credit report, lowering your CIBIL score. Paying your dues on time shows that you are a disciplined borrower, giving banks the confidence to give credit.

4. Minimum amount due: It is a fraction of the outstanding amount that has to be paid every month on your credit card bill to avoid late payment fees. If you only pay this amount, your debt may rise over time through costs such as interest cost on the remaining amount. Hence, it is essential to pay your credit card bills fully to avoid additional costs.

5. Applying for multiple credit cards: When you apply for a credit card, a bank makes a hard inquiry to determine whether you are eligible to get a card. A hard enquiry temporarily lowers your CIBIL score. Applying for multiple credit cards would mean that the banks will make multiple hard enquiries, which can reduce your CIBIL score significantly.

6. CIBIL Report: A CIBIL report shows the details of your previous and current credit accounts. Any error in this report can have an impact on your CIBIL score. Review your CIBIL report regularly, check for errors, and report them to the banks to rectify them.

7. Credit history length: Credit history shows the record of transactions since you began the account. Having a longer credit history will help banks accurately check your repayment activities.

8. Lack of credit mix: If you have a good mix of different credit options, banks feel that you are better at handling various types of credit. Having a healthy mix of credit has a positive impact on your CIBIL score.

9. Don’t close old credit card accounts: Closing an old credit card account will erase the long credit history associated with the card. If you have had a credit card for a long time, do not consider closing the account; however, you can close the account for new credit cards as the credit history is relatively shorter.

10. Debt to income ratio: This ratio shows the portion of your income that goes for debt payments. Having a high debt-to-income ratio shows greater dependency on borrowed money. This shows that your current income is insufficient to get new credit. However, having a low debt-to-income ratio means a less portion of your income goes into debt payments. This improves your credit score, improving your chances of getting loans or credit cards.

In conclusion, a CIBIL score is very important in assessing your eligibility for credit. Therefore, it is very important to maintain a good score to get hassle-free loans and credit cards. One of the essential steps to improve your CIBIL score is by paying your dues on time.