A secret to easy and fast lending is getting a good credit score. When you apply for a loan, the first thing that a lender can review is your credit score. Your loan application will go for further processing if you have a decent credit score (a CIBIL Transunion score of over 750 is known as a good one). But if your credit score is on the lower side, your request for loans will be correctly denied.
So, having a good credit score is really necessary. And note that, since it is measured on the basis of your credit history, you cannot establish a good credit score overnight.
You need to consider the variables that impact your credit score in order to generate a successful credit score.
LISTED BELOW ARE SOME OF THE FACTORS THAT AFFECT YOUR CREDIT SCORE:
- Credit repayment history: The most significant factor influencing your CIBIL score is your repayment history. Any default on credit card bills and loans is likely to have a negative effect on your ranking. But you would be credited with a higher credit score if you have paid all your equated monthly installments (EMIs) and credit card bills on budget.
- Credit utilization limit: A high credit usage cap over time gives your credit bureau a negative image and negatively impacts your credit report as it shows your growing debt load over time. By separating your total outstanding balance with your credit cap, credit usage is determined. If your credit usage decreases over time or is minimal, it means that the debt pressure is decreasing and it will help increase your credit score.
- Multiple loan application: Whenever you apply for new credit, such as a credit card, loan, etc., your CIBIL report is investigated by the bank or lending agency to review your credit history and score. Too many of these questions have a negative effect on your credit score, as you might be portrayed as a credit hungry person. If you apply for loans at the same time as more than one financial institution, you will be seen as credit hungry. Multiple demands for loans may suggest that your loan burden will increase in the future and that it will be difficult for you to meet your future debt obligations.
- Loan servicing term: The word for loan servicing also has an impact on your CIBIL ranking. It will have a favorable effect on your credit score if you are servicing long-term loans in a responsible manner by repaying the loan sum promptly.
- The high percentage of unsecured loans: Another aspect that adversely affects the CIBIL scores is a high percentage of unsecured credit, such as personal credit and credit card spending. For many banks, this is a sign of personal financial mismanagement and they are wary of extending loans to such individuals. But, if you have more secured loans, it is possible that your credit score will go up.
- Not checking your credit report for mistakes: Credit reports must be reviewed every six months to correct mistakes if any. Banks’ delayed reporting or inaccurate reporting can indicate defective credit report information and decrease your CIBIL score.
- Increase in credit limit: Frequent requests for a higher credit limit may also have a negative effect on your credit score. In this process, for your reports, the bank asks CIBIL. And, it can hit your CIBIL score with this hard investigation. Therefore, higher limit requests are only when you really need it.
- Giving a guarantee for a loan: Your credit score would not be negatively affected by serving as a guarantor for a person’s loan, but if the person for whom you have given guarantee defaults or delays payment, then your credit score will be negatively affected.