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8 Factors That Affect Your CIBIL / Credit Score

This guest post is contributed by Samawat Shakil, Content Manager, OMLP2P

The Credit Information Bureau (India) Limited (CIBIL) is the most popular of the four credit information companies authorized by Reserve Bank of India. There are three more companies licensed by the RBI to operate as credit information companies. They are Experian, Equifax, and Highmark. Still, the most popular credit score in India is the CIBIL score.

CIBIL Limited maintains credit files on 6000 lakhs individuals and 320 lakhs businesses. CIBIL India is part of TransUnion, an American multinational company. Thus, credit scores are known in India as the CIBIL Transunion score.

CIBIL Score is a 3-digit numeric summation of your credit history, rating, and report, and ranges from 300 to 900. The closer your score is to 900, the healthier your credit rating is.

Listed below are some of the factors that affect your CIBIL / credit score:

#1 Credit payment history
Your repayment past is the most important factor affecting your CIBIL / Credit score. Any default on loans and credit card bills is likely to negatively impact your credit score. But if you have paid all your equated monthly installments (EMIs) and credit card bills in time, you will be rewarded with a better credit score.

#2 Credit utilization limit
A high credit utilization limit over time gives a negative impression to your credit bureau and impacts your credit report adversely as it indicates your rising debt burden over time. Credit utilization is determined by dividing your total outstanding amount with your credit limit. If your credit utilization is decreasing over time or is low it shows that your repayment obligation is falling and it will help to improve your credit score.


#3 Multiple loan applications
Whenever you apply for a new credit such as a credit card, personal loan, home loan, etc., the bank or financial institution run an inquiry on your CIBIL report to check your past credit history and score. Too many of such queries negatively impact your credit score as this may portray you as a credit hungry person. You will be seen as credit hungry if you apply for loans concurrently with more than one financial institution. Numerous loan applications will indicate that your loan burden is going to go up in the future and if may be challenging for you to service your future debt obligations.

#4 Loan servicing term
The loan servicing term also leaves an impact on your CIBIL score. If you are servicing long period debt in a sensible manner by repaying the loan amount timely, it will have a positive influence on your credit score.

#5 Too many unsecured loans
A high percentage of unsecured credit, such as personal loan and credit card expenses is another factor affecting your CIBIL / credit scores negatively. For many banks, this is a sign of mismanagement of personal money and they are wary of extending loan to such person. But, if you have more secured loans from bank / financial institutions, the credit score is likely to go up.

#6 Not checking your credit report regularly
It is necessary to check a credit report every six months to correct errors, if any. The delayed reporting or wrong reporting by banks / financial institutions may reflect faulty information on your credit report and reduce your CIBIL score.

#7 Increase in credit limit
Numerous requests for a higher credit limit can also impact your credit score negatively. In this procedure, the bank asks CIBIL for your reports and this hard inquiry can hit your CIBIL score. Thus, requests for higher credit limit only when you really need it.

#8 Giving a guarantee for any type of loan
Acting as a guarantor for a person’s loan will not affect your credit score adversely but if the person for whom you have given guarantee fails to pay or delays payment then your CIBIL / credit score will be impacted negatively.

Having a good credit history clearly improves the chances of loan approval. Additionally, as many lenders have begun to consider credit scores while fixing interest rates, having a decent credit score can help get cheaper loans.

Author Bio:
Samawat Shakil is the content manager at OMLP2P, India's leading Peer-to-Peer Lending Platform that brings investors and borrowers together for a seamless and transparent loan disbursal experience. She writes on personal finance, mutual funds and investment.

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