CIBIL Score: Understand How CIBIL Score Is Calculated
When you apply for a personal loan, the first thing that is checked is your credit score. A credit score is not a small thing in the field of debt. You can go for any expense or meet any emergency need, without many hurdles. For any financial crisis, you would need an impressive credit score. A good score makes you liable to look out for various debt products and you get easy approval. It works in favor of you and without any wait gets you the fund credited to your account. However, to keep up a good score you need to know everything about the credit score. From what it is, to how is it calculated you need to consider every aspect so that it is easy to handle your scores.
What is a credit score?
In terms of debt, you cannot keep yourself away from this term. A credit score is a three-digit number that decides your financial journey. It is given to an individual after carefully considering all the aspects of his financial health. From bill payments to a credit account, everything is checked to give you a score. Now this score either helps you get easy approval or offers you a rejection. If you have a good score you get an easy loan at a low rate of interest. However, for a bad score, the process gets lengthy and daunting where you face rejections.
How is a credit score calculated?
- Repayment history: The weightage given to repayment history is high. If you have taken any kind of loan in the past, that will be counted in your credit score. It considers bill payments, tenure, credit limit, and loan repayment. The way you have handled your previous debt will play a vital role to get a loan in the future. If you have missed an EMI payment or kept it outstanding it will reflect in your credit score. Similarly, if you have been paying your bills on time without any default, you will have a good credit score. So, if you are having an ongoing debt, make sure you keep your account funded with the amount to ignore any loss in credit points.
- Credit age: Credit age is depicted as the tenure of your debt. If you are having a long repayment period with no failed bill payments, it will give you a good score. Closing accounts will not be a good sign as that can reflect and affect your credit score. It will not uplift your credit score. The more your credit age is, the better will be the trust to offer you a personal loan. Keep your credit account open even if you are not using it. It can be debt, a credit card, or an account that you can keep up without any closure. Do not close credit cards that come with a long credit history as that can suddenly drop the credit score to something very depressing.
- Hard credit enquiry: Hard credit enquiry can drop your credit score hugely. It impacts the credit record and drops down your score randomly. Now, what is a hard enquiry? Do you keep on running a check on your credit score? Or are you applying for multiple loan applications? These actions can drop your credit score down. Whenever you apply for a loan and the loan provider contacts the credit bureau for your credit score, they run a hard enquiry to fetch your details. These hard enquiries can get your credit score down and gives you a bad score. It is highly recommended that you don’t go for useless enquiry and credit score checks that can harm your credit score without your mistake.
- Credit mix: A good and balanced credit mix can get you a good credit score. What is a credit mix? A credit mix is a combination of the secured and unsecured loan together. If you are having both, you can get a good score. A secured loan can be a home loan or a car loan; however, the unsecured loan can be a personal loan or a credit card loan. Keep both active, so that you don’t end up being at risk with an only unsecured loan.
- Credit consumption: How are you consuming your credit limit is what counts under credit score. It is recommended that you don’t end up using the entire credit limit that creates a risky image of yours. If you are keeping 30% of your credit limit unused you can get a good credit score. Make sure you are not consuming the entire credit limit and there is no remaining balance. This can reflect a bad image on your credit score.
Check credit score free so that you know about your current status. If you are having a good score you must keep up your hard work. However, if you find a bad score, it needs to be checked and rectified as getting a loan with a bad score will be difficult.