Taking out a loan to complete an important task is considered a deliberate decision. However, did you know that your credit history can create “problems” for your future loans?

Financing your goal involves several procedures and paperwork, and a healthy credit history is a complement to this, which not only makes it easier to impress the habit of the borrower, but also creates a sense of discipline in paying your loans on time if you have taken any.

What is a CIBIL score?

Credit Information Bureau (India) Ltd. (CIBIL) is a 3-digit numeric summary of your credit history. It is derived using the information contained in the “Invoices” and “Requests” sections of your CIBIL report.

The report includes (but is not limited to) your loan accounts or credit cards, their payment status, and the number of days past due. This data can be obtained using the PAN number.

The score reflects your creditworthiness based on your borrowing and repayment history shared by lenders (such as banks).

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Your CIBIL score ranges from 300 to 900 and the higher your score, the better your chances of being approved for a loan. The closer your score is to 900, the better your credit score.

Credit Information Bureau (India) Ltd. was registered in 2000 and started operations in April 2004.

Following the entry into force of the Credit Information Companies (Regulation) Act (CICRA) in 2005, three other credit information companies (CICs) were also established. These are Experian, Equifax and Highmark.

However, the most popular credit rating in India is the CIBIL Score.

Why is the CIBIL score important?

Your CIBIL score is an important factor that lenders look at when evaluating a loan application.

The CIBIL score works as a first impression for the lender, the higher the score, the better your chances of a loan being reviewed and approved.

However, it should be noted that the decision to issue a loan depends solely on the lender and CIBIL does not in any way decide whether the loan/credit card should be sanctioned or not.

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How is the CIBIL score calculated?

The most important elements of the score composition are centered around a person’s behavior when repaying a loan.

Your payment history, your credit risk, type of loan and duration are all taken into account.

CIBIL TransUnion Score is calculated based on the information in the section “Accounts; and the Request section of your CIBIL report. The score is calculated based on the following factors:

Credit use: How much credit is used by the borrower?

Default: Did you pay installments? How many invoices are overdue and by how many days?

Trade Attributes: How old are this consumer’s lines of credit? What type of loan? Does the consumer have a good mix or balance of credit, or is it all credit cards?

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Factors affecting your CIBIL score

payment history: Late payments or EMI defaults negatively affect your account.

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Multiple Requests: Too many loan requests can negatively affect your score as it indicates that your credit burden may increase in the future.

High degree of credit utilization: A high leverage limit indicates an increase in leverage over time and could negatively affect your valuation.

How to improve your CIBIL score?

You can improve your result by adopting the disciplines of the financial cycle; Pay your credit card bills on time, don’t miss an EMI on a loan, never go out of debt, use your loan wisely.

Paying your EMI loan on time is considered one of the important habits that help you maintain a fair credit history and a good credit score.

Follow the CIBIL results report regularly. This will act as a warning about any possible inaccuracies. If you find any discrepancy/non-compliance, you can report it on the CIBIL website or ask the lender to report the correction to CIBIL.

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