Master your credit factors to unleash the potential of your CIBIL Score with powerful insights from the Bajaj Finserv Credit Pass, your ultimate credit companion.
If you’re new to credit and are planning to apply for a loan or credit card, there’s one number that you should be aware of: your CIBIL Score . It can make a huge difference in your financial opportunities and goals. But what is CIBIL Score and how does it affect your creditworthiness? In this article, we’ll answer these questions and more. We’ll also look at some practical and actionable tips that you can use to improve your CIBIL Score and enhance your credit health.
What is the CIBIL Score?
Think of your CIBIL Score as a scorecard that reveals to lenders how reliable you are with money. CIBIL stands for Credit Information Bureau (India) Limited, and it’s like a financial referee that keeps the score of each and every one of your credit moves.
CIBIL uses its proprietary algorithm to calculate your score based on your credit history. Scores occur within the range of 300 to 900, with scores above 750 typically considered ideal by most lenders. High scores of 750 to 900 are crucial to access the best financial opportunities and products on the most favourable terms, such as low interest rates. Poor scores can prove to be obstacles in every step of your financial journey.
So, how are you assigned a score? That’s where your credit factors come in!
What are credit factors?
There are five key factors that influence your creditworthiness and determine where you are located in the CIBIL Score range .
· Payment history: The most important factor in the calculation of your credit score is a track record of your timely payment of past credit accounts. Paying your loan EMIs, credit card bills, and other dues consistently on time has a positive effect on your score. Conversely, any missed or delayed payments, defaults, settlements, or write-offs have negative consequences for your creditworthiness. Hence, it’s vital that your dues are always paid in full and on time to maintain the health of your credit score.
· Credit utilisation ratio: Represented as a percentage, this ratio is a reflection of how much of your available credit you are using. So, if your credit card has a limit of Rs. 1 lakh and you spend Rs. 40,000, your credit utilisation ratio is 40%. A higher credit utilisation ratio makes you come across as credit-hungry and might cause lenders to be concerned about your repayment capacity. A low credit utilisation ratio of 30% or less shows that you are using credit within your means.
· Credit duration: A longer history of responsible credit usage with a good track record of repayment will positively impact your score. Lenders are more likely to trust you with funds as they have documented proof of your money management skills.
· Credit mix: A variety of account types (credit cards, secured home or auto loans, unsecured personal loans) can positively influence your score. By diversifying your credit portfolio you are essentially proving your versatility and prowess to lenders when it comes to managing credit.
· Credit enquiries: When you apply for a credit card or loan, lenders check your credit report and score to ascertain the risks involved in lending to you. Each such enquiry temporarily dings your score. Applying for too many new credit accounts in a short time causes your score to take hit-after-hit and sustain considerable damage because it indicates to lenders that you may have a higher debt burden.
Importance of monitoring your score
Since your CIBIL Score is one of the key factors lenders consider when evaluating your creditworthiness for loans and credit cards, monitoring and maintaining a healthy score should be a top priority. Here are some compelling reasons to keep a close eye on your CIBIL Score:
· Improved credit terms: A higher CIBIL Score can make you eligible for lower interest rates and better credit terms from lenders. This translates into major interest savings over the lifetime of loans.
· Higher credit limit: Many lenders provide higher credit card limits to customers with excellent CIBIL Scores, giving you more purchasing power and flexibility.
· Better loan approval chances: You are more likely to get approved for loans and credit cards with a higher CIBIL Score. Lenders view borrowers with high scores as less risky. Some lenders may outright reject applicants with poor CIBIL Scores.
· Avoid credit report errors: Monitoring your score helps you identify any errors in your credit report early and get them corrected. Errors could negatively impact your score if left unchecked.
· Track credit profile strength: Tracking your score over time helps you evaluate if your credit profile is improving or deteriorating so you can take corrective actions.
· Financial discipline: Knowing that your CIBIL Score is at stake motivates you to maintain healthy credit behaviours. This financial discipline helps strengthen your score.
· Peace of mind: A high CIBIL Score gives you the satisfaction and confidence that your credit profile is healthy. This peace of mind becomes very handy when planning for major financial goals like buying a house or funding your child’s education abroad.
Improve your CIBIL Score
· Check your credit report regularly: Reviewing your CIBIL Report frequently allows you to catch any errors or discrepancies which could be lowering your score. Getting mistakes corrected improves your score.
· Maintain low credit utilisation: Using more than 30% of your total available credit limits negatively impacts your score. Keep individual and total utilisation low.
· Pay bills on time: Payment history carries high weightage in calculating your score. Missing payments lead to lower scores. Build a track record of timely payments by setting reminders or automating payments.
· Limit hard enquiries: Every application for new credit counts as a hard enquiry and can lower your score temporarily. Only apply for credit when essential to limit enquiries.
· Have a diverse credit mix: Having different types of credit – a personal loan, credit cards, a secured home loan, etc. - builds a healthy mix. This positively influences the score.
· Increase credit limits: Higher credit limits with low utilisation convey creditworthiness and can boost scores. Request increased limits only with financial discipline.
· Allow credit history to age: CIBIL Scores factor in the average age of your credit accounts. Letting your accounts age over time by not closing old accounts helps.
· Become an authorised user: Being added as an authorised user on someone else's old credit card with good standing improves your score.
Following these tips consistently over time builds a strong foundation for an excellent CIBIL Score, which makes credit more accessible and affordable. And if you need a hand in monitoring and managing your credit factors, the Bajaj Finserv Credit Pass can help you with that.
This innovative subscription is powered by CIBIL and allows you to monitor your credit factors from a personalised dashboard that neatly organises all your credit accounts in one place. With real-time insights into your credit health report and monthly CIBIL Score updates, you’ll always know where you stand. You can also use tools like the Credit Score Simulator and EMI Calculator to plan your credit decisions with confidence. Want to know the best part? Signing up now during the limited-time offer period allows you free, unlimited access to all these features for the first year. So, sign up for the Credit Pass today to elevate your credit health and unlock future financial success.
