5 Factors That Affect Your CIBIL Score

CIBIL score is an important factor that helps you get loans and other credit products. Today, the lenders consider the score to determine loan applicants’ eligibility. Read on to know more about the factors that affect the CIBIL score.

When you compare home loan offers from different lenders, you will inevitably know that every lender considers the CIBIL score or the credit score as one of the important parameters to determine your eligibility.

What is CIBIL Score?

A CIBIL score is essentially a numerical representation of your loan repayment capacity. It is a three-digit number that falls in the range of 300 to 900. If your credit score is closer to the 900, you have a higher chance of getting your loan approved at a competitive interest rate. But, if your score is low, the lender may reject your home loan application.

Generally, the lenders in India consider a score of 700-750 as a benchmark for home loan applicants.

Factors that affect the CIBIL Score

One of the factors that have a significant impact on the credit score is outstanding dues. If you have any outstanding payments like a vehicle loan or credit card bills, it will hurt your credit score. So, before you apply for a home loan, it is advisable to repay the debts fully, even if it is a small amount.

Many people, especially the credit users, repay the minimum amount due without realising its impact on the credit score. Rolling over the debts by paying only the minimum amount leads to interest compounding on your outstanding balance, and soon you may find yourself in a debt trap. It also reflects bad repayment behaviour. Hence, experts suggest that you must repay the credit card dues in full before applying for an online home loan.

Acting as a guarantor for someone’s loan does not affect your credit score, but if the person fails to repay the due or delays the repayment, it can negatively affect your credit score. So, if you are looking to apply for a home loan, it is better not to sign as a guarantor for anybody’s loan/credit.

Another common factor that reduces the CIBIL score is applying for multiple loans with different lenders. When you apply for a home loan, the lenders always check the CIBIL score to know about your repayment history and assess your repayment capacity. When you apply for multiple loans with different lenders, there will be multiple checks simultaneously, which will reflect that you are credit hungry, and it will lower your score.

When you apply for any type of credit, be it a credit card loan, you must remember the thumb rule, i.e., use the credit in proportion to the limit available to you. Experts suggest that you must not use more than 30% of the credit limit to maintain a good credit score. For example, if you are eligible for an Rs. 1 lakh loan, you must not avail credit of more than Rs. 30 thousand. If you use 60% or more of your credit limit, it will harm the credit score, and lenders may consider you a high-risk borrower.

You can easily check your credit score online or get the CIBIL report. The report gives you a detailed account of your current as well as past credit records. Suppose you notice any errors in your reports. In that case, you must immediately report the same and get it rectified as any illegal transaction mentioned in the report can lower your credit score.

You must check your CIBIL score periodically and try to maintain it over 750 to get a better deal on a home loan.