Your CIBIL score or credit rating is a number that is being used by the banks or lending institutions to determine whether to sanction your loan application or not. Various Credit Card companies, auto dealers or banks/private FIs, etc, check your credit score to see your financial standings and capability to pay off your debts. These scores play a vital role to figure out whether you are applicable to get a loan or not. Generally, a good CIBIL score falls in the range between 300-900. But how to increase credit scores or do you need an advanced degree to figure out what is affecting your CIBIL rating?
In this blog, financial advisor, Mr. Ngulminthang Lhanghal is explaining a few factors that affect your score. You must consider them at once to brighten the chances of your loan approval. Here they are as follows:
1. Your Payment History – Your payment history holds a significant weightage on your score and even one missed payment can bring a negative impact on your profile as a borrower. It is a record of whether you’ve paid your bills on time or not including credit card bills, student loans, mortgage loans or car loans, etc. By evaluating your payment history, the lenders want to make sure that you can pay back your debt on time. So, if you have multiple bills & loans to pay, set up reminders or alarms to avoid missing or delayed payments. It can have a poor impact on your score.
2. Outstanding Debt/Amount Owed – The number of debts you owe holds 30% weightage of your CIBIL score and it can even adverse the situation when your reports show any amount owed. Also known as your credit utilization ratio, it is calculated by comparing your credit limit to how much you have used. So, it is recommended to keep your credit utilization ratio at 30% or less by paying down your balances & settling all your outstanding debts.
3. Length of Credit History/Credit Age – Your score also gets affected by how long you have been using credit facilities. For example, the number of years you have hard obligations, your oldest credit account, the age of your new credit account, or the average age of all your accounts, etc. It holds 15% of your overall scores. Generally, the longer your history is, the higher your scores will be. Though a short history will also work as long as you made your payments on time.
