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Did you miss out on planning your CIBIL score?

05-Oct-2016 written by : FSI-Team

Getting a line of credit, be it a loan or credit card may be a tad easier than it ever used to be, owing to a larger number of willing lenders as compared to earlier, but it also comes with a caveat. While banks and financial institutions do look forward to lending, they also look at lending to the right customer profile. One of the first things that a lender would want to ascertain is the creditworthiness of a borrower, that is the likelihood of the loan going ‘bad’ or the customer defaulting on loan repayment on disbursal.

How then does a lender get this crucial information, which can often be the deciding factor between a loan application being rejected or sanctioned? Or if not rejected outright, then possibly with a rate of interest significantly higher than it would have been otherwise? The answer is simple – lenders look at your credit information report, and the credit score that is derived from it. This data is published by credit bureaus such as CIBIL, Equifax, Experian and CRIF High Mark in India, based on the data submitted to them by their members, which are none other than banks and other financial institutions.

About the credit score

The score is a three-digit numeric representation of your credit report, and typically ranges between 300 and 900. It is understood that an individual with a higher or good score is less likely to default on repayment. A CIBIL score of 750 and above is considered to be a good score. Note that each lender may differ slightly when it comes to the actual score, but the algorithms used at the back end to derive the score are more or less constant. This is because a score is dependent on a number of factors, all of which constitute the score.

What constitutes the credit score?

A credit score depends upon the following parameters:

  • Payment history
  • Length of credit history
  • Amounts owed (to a lender)
  • Credit mix
  • Number of hits, or enquiries

How can you plan your credit score?

You can work towards planning your credit score by ensuring you monitor the below mentioned parameters:

  • Making timely payments - All EMI dues need to be paid on or before the due date always, to avoid getting a black mark against your score. If you need help keeping track of payment due dates, consider setting up reminders or opt for facilities such as direct debit or ECS mandates.
  • Maintaining a low credit utilisation ratio – When you max out on your credit card limit or come close to that, your credit utilisation ratio shoots up and this to a lender indicates that you may just be in a spot of financial trouble. Hence they would be wary of extending any further credit to such a customer. The ideal ratio that one should not cross is 30 percent, across all credit cards held by you.
  • Having a healthy credit mix – When your portfolio leans towards only secured or unsecured loan products, it could indicate that a person is not too good with handling risk, and depend only on one form of credit always. Instead, ensure you have a healthy mix of products, to show a lender that you are indeed capable of handling all types of debt equally well.
  • Keeping the number of new accounts low – Do not just sign up for a new credit card merely because the attraction is a waiver of the first year annual fees, or a similar freebie or discount. This is because not only does it indicate credit-hungry behaviour, but each time a card issuer makes an enquiry against your name with a bureau, you score takes a hit, even if temporary.

In conclusion

Remember that to build a good credit score requires a combination of financial discipline, hard work and perseverance. While it is easy for your score to drop on account of poor credit habits, to subsequently increase the score is not all that simple, while not altogether impossible either. You need to know how to clear CIBIL issues and stay out of the CIBIL defaulters list, if you want your loan or card application to be approved. However a more prudent stance would be to ensure not getting there in the first place, and working your way towards a sound financial future. Hence, sound planning will ensure that you do not miss out on having a good CIBIL score, one that will help you in the long run.


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