Factors Affecting CIBIL Score

Your loan application will be approved much faster if you have a strong CIBIL score. When you apply for a loan, the first thing they look at is your credit score, which, because it reflects your creditworthiness and payback history, can either impress or displease your lender. With a good CIBIL score, you’ll be able to negotiate high rates on a variety of loans, which you won’t be able to do with a poor score.

When you apply for a loan or a credit card, the first thing a lender will look at is your credit score. The best way of getting your loan request accepted rapidly is to have a strong credit score. A variety of factors are considered while calculating your credit score. There are some important aspects to consider, as listed below:

Your CIBIL Report has Errors

Your CIBIL Score may be affected by inaccuracies in your CIBIL Report, such as an incorrect statement of default in repayments, errors in current loans/credit cards stated, and so on. Ideally, you should check your credit report on a regular basis and file a CIBIL dispute to correct any mistakes as soon as possible.

History of Payments

The most significant factor is your payment history. You are a responsible borrower if you have a spotless payment history. Because the lender knows you’re a creditworthy borrower, he may offer you the greatest loan conditions and interest rates. As a result, make sure you don’t miss any payments.

Keep track of all of your monthly payments to ensure that they are made on schedule. Payment default has a negative influence on your CIBIL rating, even if it is a legitimate omission. You can use tools like NEFT mandates to make sure of the fact that monthly EMI payments are paid on schedule.

Enquiries, both hard and soft:

The lender obtains your credit information from the available bureaus when you apply for a loan or a credit card. This is referred to as a “pull” or “hard” inquiry. If you apply for too many things at once, your credit score may suffer.

A soft inquiry is when you use third-party services to verify your credit score. Also, if you inquire about a pre-approved loan or credit card offer, it will be counted as one of your soft inquiries and will have no negative influence on your credit score.

Making Multiple Credit Applications: 

Lenders will want to examine your creditworthiness when you apply for a loan or a credit card, and they will do so by checking your credit report. This is referred to as a “hard inquiry.” If you submit numerous applications, this means that multiple credit queries will be made at the same time. These difficult enquiries are recorded and have a negative impact on your score. It makes you appear credit-hungry.

If your loan or credit card application was recently declined, it’s advised not to apply for credit soon away. Before reapplying, you should try to improve your CIBIL score.

Credit History Length: 

In the most simplest words, credit history constitutes the total number of years since you started maintaining a credit account. If you have a long credit history, it guides the lenders in making informed decisions when providing the loan facilities to you. It is smarter to focus on developing a credit history from the initial point, as you will have an impressive track record of credit transactions by the time you apply for a personal loan or any other debt.

Credit Combination

One of the most popular criteria used to compute credit scores is credit mix, or the diversity of your credit accounts. It’s also one of the least effective among customers. Multiple credit accounts, such as a home loan, a personal loan, and a credit card, demonstrate to lenders that you can maintain different types of debt at once. It also aids individuals in better comprehending their financial status and willingness to repay loans.

While having a less broad credit portfolio does not necessarily mean you will have worse credit ratings, the more credit kinds you have the better. Credit mix makes up 10% of your credit score and can help you achieve a good score.

The Bottom Line

Finally, remember that having a strong CIBIL score gives you a better opportunity of negotiating a cheaper interest rate and boosting your chances of getting a loan sooner than usual, which may get you a deal of time and resources. Furthermore, it will keep you in good standing with a bank, and they will approach you with offers that you would not receive if you had a poor CIBIL score.

Read Also:- How is Home Loan EMI Calculation Done?

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