Is your CIBIL score less? But need a personal loan? Learn what are the impacts of CIBIL score and what can be done to improve it. Looking to take a loan with a low CIBIL/Credit score? First, try to understand the credit score. At this stage, you’ll have more questions like how can you know about your CIBIL/Credit score?
The Credit Information Bureau (India) Limited (CIBIL) is a credit information company licensed by the Reserve Bank of India (RBI). A CIBIL/Credit score is the summary of your three-digit numeric credit card history, rating, and report; it ranges from 300 to 900. The CIBIL report comes within the score assistance of credit history. A Credit information report doesn’t contain details about your savings, investments, or fixed deposits, they just access your credit card payment history across loan types and credit institutions.
How is your CIBIL score calculated?
Your CIBIL score plays a key role after you make a loan request to any financial organization. Having a better CIBIL rating increases your loan application’s chances of sanctioning.
Every credit rating agency has its way of calculating the credit score for a consumer using different parameters. Before applying for your loan application, you need to have a transparent understanding to calculate your CIBIL score and to reduce the possibility of getting rejected because getting a loan with a low credit score from a financial organization is extremely difficult.
While each company has its algorithm to calculate a consumer’s credit score, the foremost important elements of a score composition are centric on the loan payment behavior of the individual.
The score is calculated in support of the subsequent factors:
Credit Utilization: What proportion of the credit is the consumer using?
Delinquency: How many accounts are past due, and how late they are?
Trade Attributes: What’s their credit type? Does the individual have a decent mix or balance of credit, or is it all credit cards?
Your CIBIL score report determines whether or not you qualify for a loan, but it’s going to also impact the terms and conditions you are about to avail yourself of for the loan. A personal loan for a low CIBIL score is hard to induce from the financial institutes, but if you want to avail a faster loan your chances will increase with a better credit score and you will get it on your favorable terms. It’s always advisable to check your CIBIL score before applying for a loan.
Why is CIBIL score important while applying for a loan?
If you’re looking to avail of a personal loan, one of the primary things that the lender will check is your CIBIL score for authorization. Financial organizations cannot sanction a personal loan with a low credit score.
Lenders like non-banking financial organizations and banks first check your checks your credit then proceeds to your application.
If you manage your finances well and have a decent credit history, you ought to have an excellent score. 750 or above is considered an excellent CIBIL score for a personal loan for many lenders.
Borrowers with lower CIBIL scores may have difficulty getting loans from financial organizations. They typically pay higher interest rates on loans or may even get rejected by the lenders.
To assess your eligibility, lenders also use various parameters like location, age, work experience, income stability, nature of the profession, etc. However, having a sound CIBIL score for loan approval goes an extended way in securing an acceptance from the lender of your choice when applying for a personal loan.
What is a bad CIBIL/ Credit score?
A credit score measures your creditworthiness presented in an exceedingly numerical format. It ranges between 300-900, 300 being the rock bottom and 900 being the best. It might be best if you mostly worked towards maintaining a credit score closer to 900.
A credit score within the range of 300-550 is taken into account as bad. If you’ve got a credit score that falls in this range, you must take serious measures to improve it. Having a bad credit score won’t make you eligible for a loan or get a credit card.
The factors that affect your credit score.
There are several factors restraining your credit score which will reduce your chances of getting a personal loan, and thanks to a bad credit score. Let’s take a look at some factors that can bring your credit score down:
Not checking your credit score.
You should check your credit score from time to time because it can go down drastically as some errors may occur in your credit report.
Delaying payment of bills
Not paying your bills or EMIs on time is the biggest factor that may massively harm your credit score. You must avoid delays while paying your EMIs and credit card bills each month. You must maintain discipline and pay all the bills on priority because your credit card will be affected. At the same time, you must try to pay all your bills fully and avoid paying the minimum balance due. If you don’t pay your bills in full, you pay plenty of interest.
Closing old credit cards
If you close your old credit cards, you lose out on years of fine credit history and repayment behavior. Hence, it’s advisable to keep your credit cards active as long as possible.
Multiple credit card application
When you apply for multiple credit cards at one time, it can cause you to look credit hungry. Therefore, it’s advised to space out your credit card and loan application throughout the year instead of applying simultaneously. Several credit applications can trigger inquiries that will harm your credit score.
How to improve your credit score?
Banks don’t like to give loans or credit cards to people with low scores because they don’t trust them with their money. If you apply to get a personal loan for a bad credit score in India, you might have to pay awfully very high-interest rates. You can increase your credit score in many ways. Some of them are mentioned below:
Always check your Credit Report
One of the important things you must do to enhance your credit score is to check your credit report. Doing this will help you identify errors in your report. If you discover mistakes in your report, you need to get them rectified immediately because the credit score is calculated supporting the information mentioned in the credit report, you need to make sure that this report is free of errors.
It is another major factor that you should consider while credit score calculation is that the percentage of the amount available versus the percentage of the amount you are using shows how much you are dependent on credit money. People should keep their credit utilization below 30%. So, if you have got multiple credit cards, keep a check on what percentage of the money you are using on credit. Also, try and find a credit card issuer who will accept multiple payments every month.
These are some habits that you simply can weave into your life to boost your credit score over time. However, it’s important to note that these steps won’t immediately change your credit score. After implementing them it will take around 6 months to a year to enhance your credit score.
Your CIBIL score will be low if you haven’t borrowed any funds as you won’t have a credit history and you might know now that a personal loan without CIBIL will be difficult to get approved off. So make sure you have a healthy mix of both secured and unsecured loans for a long and short period to build a required credit score.