A CIBIL score is a three-digit number that determines the creditworthiness of an individual, as well as of a commercial entity; it ranges from 300 to 900, with scores above 750 usually considered good by most lenders. This score will determine if a person will be granted loans or credit cards. There are various parameters impact the CIBIL score; an understanding of these parameters will help one manage finances better and maintain a healthy credit profile.
Key Parameters impact
the CIBIL score:
1. Payment
History: Payment history
is one of the more significant parameters impact the CIBIL score, showing
whether an individual has paid his credit card bills and loan EMIs promptly or
missed payments or defaulted in payments, which significantly lowers the score.
2. Credit
Utilisation Ratio:
Credit utilisation ratio, proportion: percentage of total indebtedness to the
credit limit. The higher the number, the more it reveals that a person is
over-dependent on credit, reflecting badly on their score. Ideally, less than
30% of the available credit is what he must have used.
3. Credit Mix and
Duration: A mix of
secured loans, such as home or auto loans, and unsecured credit (such as
personal loans or credit cards), also has a good effect on the score in
addition to having a longer credit history on regular repayments.
4. Unsettled
Debt: Outstanding debt:
Unpaid dues or outstanding balances can reduce the score too. Even minor unpaid
sums can affect the credit report if not paid for a long time.
5. Many Credit
Applications: An increased
number of credit applications results in hard inquiries on the credit report
made during a certain period. This signifies that the applicant is hungry for
credit, causing a great drop in the score.
6. Minimum
Payments: Minimum
payments: Regularly making the minimum due payments on credit cards only can
trap a person into a debt cycle. Also shows poor financial discipline and
affects the score adversely.
How to Manage
the Parameters impact the CIBIL score:
• Pay on Time: Credit cards always pay bills and loan
EMIs before their due date. Reminders or auto-debit will help avoid missed
payments.
• Limit Credit
Utilisation: Keep usage
below 30% of total limit. If required, request additional credit limit to keep a
low utilisation ratio.
• Maintain
Credit Mix: Do not rely
entirely on unsecured loans. A combination of secured and unsecured credit
shows responsible borrowing behaviour.
• Clear
Outstanding Dues:
Regularly check the credit report and clear pending dues. Even small amounts
should not be ignored.
• Avoid Frequent
Applications: Apply for
credit only when necessary. Wait to reapply if a loan or card application has
been denied.
• Pay Full
Amounts: Pay as much of
the outstanding amount on credit cards instead of the minimum due. In this way,
less interest will accrue, and a good score will be maintained.
In summary,
maintaining a good score in CIBIL always requires discipline in financial laws.
The more someone understands the parameters impact the CIBIL score and manages
them wisely, the better chances he has of getting credit at favourable terms.
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