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September 21, 2023

An Essential Guide to Exploring About CIBIL Score

CIBIL score is considered an essential financial aspect that lenders look at before approving any loan application. Therefore, you are required to know about this score if you want to maintain a good CIBIL score for your convenience and benefits. Read to know more aspects of it and how it works.

What Is CIBIL Score?

CIBIL score is nothing but some 3-digit numeric summary of one’s credit history. It is derived from the details in the ‘Accounts’ and ‘Enquiries’ segments of the CIBIL Report. Other contributing aspects include payment status, credit card details, loan account details, etc.

This loan generally reflects one’s creditworthiness which is based on borrowing as well as repayment history. One’s CIBIL score is to range from 300 to 900. You are always supposed to have a higher score, as it will assist you in getting your loan approved. Lowe CIBIL score means you will find it difficult to get your loan approved by the lender.

Most loans are sanctioned and approved depending upon one’s CIBIL and credit score. There are certain loans for people with bad credit, but getting a loan approved with low credit is often difficult. Hence, you can thus understand the importance of having high credit or CIBIL score.

How is CIBIL Score Generally Calculated?

As you now know about the importance and significance of the CIBIL score, you are supposed to understand how this score is calculated. Four essential aspects are to impact the CIBIL score.

  • Payment History

The first and foremost essential aspect in this regard is one’s payment history. If you make late payments or default on your EMIs or credit cards, it will negatively affect your CIBIL score. Hence, the bank is supposed to look at your payment history while calculating your credit score.

  • Credit Mix

On the other hand, credit mix is another vital aspect. It would be best to have a balanced mix of unsecured and secured loans. If you can do it, it will positively impact your good credit or CIBIL score.

  • Multiple Inquiries

If you make many inquiries regarding loans or credit cards, it may negatively impact your CIBIL score for obvious reasons. Making several inquiries indicates that your financial burden may go up gradually.

As a result, it somewhat lowers your credit or CIBIL score. Hence, it would be best if you did not make multiple inquiries for your benefit. There could be other issues and problems with making multiple inquiries. Hence, it would surely be beneficial and advantageous for you to refrain from doing it.

  • High Credit Utilization

High credit utilization is also considered to be an essential factor in determining your CIBIL score. It indicates that you will have a rising debt burden in the future, negatively impacting your overall CIBIL score. This is why you must consider this aspect before making the same mistake. If you have a low CIBIL score, you must fix CIBIL score.

How to Effectively Build a Good CIBIL Score?

You can understand from the above discussion that building a good CIBIL score is of utmost importance to have a sound financial history. But what to do if you already have a poor CIBIL score? Well, you can certainly build the score for better. In this regard, you can surely follow the tips and tricks below for your convenience and benefit.

  • You are supposed to pay all your EMIs and credit card bills within the specified period. It will clear your default dues, which will improve your CIBIL score.
  • Moreover, it is also a good practice to keep balances low. It would be best if you never used much credit and you are required to control your utilization.
  • On top of that, it is also recommended for you to maintain a healthy credit mix of unsecured and secured loans. It is wise to avoid too many unsecured loans as they may affect your profile negatively.
  • You need to apply for some new credit in moderation. It indicates that you are not looking for excessive credit.
  • You should also properly monitor the co-signed if you have a joint account.

If you can seriously follow the above-described aspects, you can build your CIBIL score effectively.

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