What is a CIBIL Score?
CIBIL Transunion Score is a 3 digit number which represents your credit history. This score is calculated on the basis of your credit report which contains your credit history. The CIBIL score ranges between 300 and 900. High score implies a good credit history. So, closer the score to 900 better it is. If you have score closer to 300, there are high chances that your credit card application will be rejected.
Why is CIBIL Score important?
As state above it is the most important factor that is used by credit institutions to check your credit worthiness when you apply for a loan.
Following are the Benefits of a High Credit Score
To Get Loan Approvals: When you apply for a loan, the lender will check your credit history before giving you the credit. The best way of doing it is checking your credit score. A CIBIL score indicates your credit worthiness to the lender. If you have a high credit score, the lender will consider lending you safe and your loan application will be accepted after evaluating your repayment capabilities. But if you have a low credit score your loan application will be rejected outrightly even if you have the repaying capabilities.
To Avail Loan at Lower Rate of Interest: A high credit score can also help you in getting a loan at lower rate in case you apply for a personal loan where the interest rate on loan varies over a wide range.
For the Fast Disbursal of Loan: A high credit score will help you in getting a loan approval faster. Faster approval means loan disbursal will also be faster.
Read More About: Benefits of a Good CIBIL Score
How is CIBIL score calculated?
The basis of calculation is your credit history. The credit bureau collates all the information about you in one report to calculate your CIBIL Transunion score. It is calculated on the basis of your account and enquiry section in your credit report. Following are the factors that are considered in calculating your credit score.
Your credit history is given highest weightage while calculating your credit score. How you have servced your past debt obligation has a weightage of 30% in your credit score calculation.
Credit mix and duration
What percentage of your credit portfolio consists of secured loan and unsecured loan along with the duration of the loan will contribute another 25% of your credit score.
The total amount of credit that you have outstanding will decide the 25% of your credit score.
Rest of the factors such as credit utilization, recent credit behavior will contribute the rest 20% of your credit score.
What are the factors that affect your credit score?
Delayed payments and defaults
Credit score is calculated based on your credit history. Any defaults or late payments in the recent past (last couple of years) will impact your credit score negatively as it gives a negative impression about your credit worthiness.
High utilization percentage
Utilization percentage is the ratio of your total outstanding loan to your credit limit. If you repay your debt timely and your outstanding loan and credit card balance is going down, your utilization percentage will also go down. This is taken positively by your credit bureau. But if your current balance on your credit card or loan is increasing over time, it indicates that your repayment burden is increasing. This will impact your credit score negatively.
Higher percentage of unsecured loans
Higher percentage of secured loans such as home loan or car loan in your loan portfolio is better for your credit score because these loans are generally available at cheaper rates. While unsecured loans are easily available but are also expensive. Higher proportion of unsecured loan gives an impression to the credit bureau that you have to service debt with high interest rates.
High number of credit application
Large number of credit applications means you are frequently trying to avail loans. This portrays you as a credit hungry person to the credit bureau affecting your credit score.
Read More About: Factors that Affect Your Credit Score