Be it a personal loan, business loan, home loan or any other type of loan; your credit score remains the most vital factors in determining your creditworthiness and rates.
When it comes to the CIBIL score, the concept is simple to understand – the better your credit score, the less will be your loan interest rate on availed loans.
In other words, having a good credit score mean savings thousands of bucks that you would have paid if not having a good score. You can check your credit score online these days for free either on a third-party website or CIBIL website.
But, after having said that, let’s list out major factors that can impact your credit score. Have a look!
- Late or missed payments
A major portion of your CIBIL score comprises of timely and consistent payments. Hence, if you are not into the habit of paying your existing payments such as loan EMIs, credit card outstanding and more, it can affect it hugely. That’s where the importance of paying bills on time increases if you don’t want the credit score to be affected, especially when you have a loan to apply.
- Increased debt/credit ratio
If there is a sudden spike in your balance and if you have not extended a new credit line, be ready for a sharp decrease in your credit score. It is true in case that balance is on a credit card and is not paid quickly. Extended credit to debt ratio also make a major part of the CIBIL score. Thus, you should be aware to keep the balances on your credit card as low as possible.
Lenders usually extend a loan to such salaried individuals with an employment history of at least 3 years. Thus, if you have been unemployed for long and love to switch jobs just for monetary gains, it will surely affect your credit score. Why? Credit bureau will not acknowledge that you are currently unemployed but it will surely recognize the income reduction leading to a lower credit score.
- Too many loan requests
Be informed to know that when you request for a loan with too many lenders at a single, it reduces your credit score. Why? It’s because each time you submit a loan request to a lender, it pulls out your CIBIL score and doing that each time reduces it. Thus, make it a point to apply for a loan request once at a time and if it gets rejected, wait for at least 3-6 months to again apply.
- Servicing a long-term loan
Yes, even the loan- term also has an influence on your CIBIL score. if you are serving a loan for a long period, but in an accountable manner by repaying it timely, it will positively affect the credit score.
- High percentage of unsecured loans
If you are serving a higher number of unsecured business loans it can affect the CIBIL score. Lenders also see this as a mismanagement of the personal finance options issued.
- Not checking your Credit Score frequently
You should make it a point to check your credit score every 3 months or so. It is vital to do as there could be some errors on it which needs to be corrected to get a good score. If you leave it as it is, your credit score will surely take a beating!
- Acting as a loan guarantor
Some people also act as a guarantor for another person applying for a loan. Although it would not affect your CIBIL score but when that person defaults on his/her loan repayment, it is bound to affect your score negatively.
The Bottom Line
Now that you are aware of some of the major issues that can affect your credit score, ensure that you resolve all such things and keep your CIBIL score in good shape. Having a good CIBIL score will ensure that your future loan request gets approved and you grab them at a lower interest rate to make it affordable in the end.