27-Mar-2019 written by : FSI-Team
Not many people know about a credit score, until they are in need of a loan or a financial product. For many of us, we are always thought that loans and credits are always bad; you should buy things on cash or the money which is with you instead of opting for a loan. But this was in the past and you have various loans and financial products which are available in the market just to help you out and make your life easy.
Imagine you see the latest smart phone available in the market which has a price tag of ninety thousand rupees. You have good amount saved in your bank and you can buy the phone like immediately with the money you own. But you hear from your friend about a consumer durable loan which helps you buy the same product on zero interest rate and no processing charges. Won’t you buy the smart phone through a consumer durable loan which will not dig your savings at the same time you can own the phone at easy installments? For the same thing to happen, you will have to keep your cibil score calculation intact. How would you do that? Do you even know which are the criteria’s of the cibil score and how is it calculated?
We are here to help!
A credit bureau stores your financial information which is provided by the banks and lenders from whom you have loans ongoing. It’s a compilation of various banking transactions which helps your future lender to determine if you are loan worthy.
Here are the components of a credit score calculation,
This is the most important criteria’s of all. Payment history contributes 35% of the total credit score. if you are making all your payments on time, you can expect a rise on your credit score if not at least your score will be steady and on the higher side. One failed transaction can do serious damage to your score and hurt your chances of getting any loan in the future. What you can do is to setup auto payments which will help you make all your payments on time and help you get your cibil score up in no time.
This majorly is the case when you happen to opt for a credit card. A credit card always comes with a pre-approved limit which helps you do your shopping and purchases. The lender always looks on how much credit utilization is done and if you have maxed out your credit limit then you are in danger and are seriously damaging your credit score. A sensible utilization of credit makes up 30% of your total credit score. Look at the situation this way, even if you are not using your limit you are contributing to the score.
Each credit account has its own tenure. The longer your loan tenure, better are your chances to up your score. This factor contributes 15% of the total score. This is perfect for people with home loans as their loan tenure is usually 15 to 20 years.
Credit inquiries contribute 10% to your score. More the credit inquires; more you are taking a dip on the score. It’s suggested; opt for a financial product only when needed, you can still opt for a personal loan with no cibil, only the interest rates will be higher.
This is the last criteria’s of the score calculation. In your report if you have various types of credit ongoing, there are good chances of getting your score up. Credit mix makes up the last 10 percent of your score.
These are the main factors contributing to your credit score. Now that you know the same, you should starting building good credit so that when the time comes, you won’t find any problem getting a new loan.