There is a potential that you will overlook a few significant CIBIL-affecting factors. You must understand how your credit score is determined and how it is affected as a borrower. Multiple things that have a direct impact on your daily finances can affect your CIBIL score. Your financial decisions are impacted by your CIBIL score, which in turn affects your credit report or CIBIL report. Additionally, a low CIBIL score demonstrates poor financial management, which discourages lenders from offering you a large loan. It shows that, as a borrower, you are unreliable in your ability to repay the borrowed sum on schedule.
So, how CIBIL is calculated?
There are four major factors that influence the calculation of your CIBIL score: payment history, credit exposure, credit type and duration, and other factors.
| Percentage | Factors |
| 30% | Payment History |
| 25% | Credit Exposure |
| 25% | Credit Type and duration |
| 20% | Other factors |
Negligent Payment Behaviour
Your payment history has a major influence on the CIBIL score. It is a good habit to pay your bills on time. Good financial habits will help you tackle any challenge that you might face. Your negligent payment behavior has a huge impact on your CIBIL score. There are chances that you miss a payment when you have multiple credit cards and EMI bills. It is advised to keep every message, email, and call on alert in such a situation. Keeping everything on track helps you maintain a healthy CIBIL score.
Exceeding Credit limit
As a borrower, you should follow the basic rule of utilizing 30% of the credit limit. This allows you to keep an eye on your credit limit. By exceeding the credit limit, you might alert lenders as a risky borrower. Always remember, that you should not exceed 50% of your credit limit. For example, if your credit limit is ?2 Lakh, you should aim to spend around ?60,000 and not more than that. Utilizing more than the credit limit might negatively impact your credit limit.
Unpaid Dues
A credit report is a reflection of all your credit history including repayment history, any outstanding payments, overdue, and any default in payment. It is advised that you should always clear your unpaid dues or any outstanding credit, even if it is a small amount. Having an unpaid due will negatively impact the CIBIL score.
Paying only the Minimum Amount Due
It is important that you have good repayment behavior, paying only the minimum amount due will negatively impact your credit score. By constantly paying the minimum amount due, you will fall into a debt trap. Another important factor that occurs is compounding interest on the outstanding amount due. The high-interest rate takes out a major portion of your daily and monthly financial budget.
Making Multiple Credit Applications
A hard inquiry is done by lenders whenever you apply for a credit card or loan. When you make multiple credit card request, it reflects on your CIBIL report or credit report. These multiple requests then negatively affect your CIBIL score. As a borrower, you should never immediately request another credit card application. And if your credit card application is rejected, you should first improve your CIBIL score.
Errors in your CIBIL Report
Any error in your CIBIL report is not good for your CIBIL score. CIBIL report is a detailed report where you have your entire credit history. If you find any errors, you should correct those errors immediately. The errors will reflect on the CIBIL report and can hamper your CIBIL score and only lenders can rectify your errors.
Not Having a Credit Mix
There are two types of credit – secured and unsecured credit or loan. As a borrower, you should have a mix of both types of credit. Having both types of credit increase the confidence of the lender. It helps lenders in understanding that you have experience in handling both types of credit. Generally, a credit card is categorized as an unsecured loan while an auto loan and home loan are considered as secured loans. If you are someone who has only one type of credit, it will impact your CIBIL score or credit score negatively.
Credit History
Credit history begins when someone applies for credit or a loan for the first time. A borrower with a long credit history is always given preference over someone who has a few years of credit history. A long credit history boost confidence and trust with the lenders. Also, you can get a loan easily when you have a long credit history.
To Conclude
Irrespective of your CIBIL score, it is important that you should have good financial habits from earlier stages of life. These habits lay a foundation for a good finance portfolio. It might take a few months or even years to change your negative CIBIL score. While you focus on improving your CIBIL score, you should also consider planning your credit from time to time.
