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Major Factors That Affect Your CIBIL Score

A CIBIL score is an important factor that helps you get access to credit products like loan and credit cards. Lenders such as banks and other financial institutions take into consideration your score and other factors including your income, age, and job stability, among others.

What is a CIBIL score?

A CIBIL score is a numerical representation of your ability to repay the credit. It is a three-digit number that falls in the range of 300-900. A score closer to 900 can get you better deals on credit cards and loans. Majority of lenders like banks and non-banking finance companies (NBFCs) prefer a CIBIL score of 750 and above.

Who Calculates your CIBIL score?

TransUnion CIBIL credit bureau calculates CIBIL scores after taking into consideration several factors including payment history, credit type, the age of the credit, and other factors.

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What are the Factors that Affect your CIBIL score?

A CIBIL score is made up of four main factors:

Payment History 30%
Credit Exposure 25%
Credit Type and Duration 25%
Other Factors 20%

Let’s take a look at some of the major factors that can affect your CIBIL score negatively:

  • Irresponsible Payment Behaviour:
  • Your payment history has the biggest influence on your score. It is important to pay your credit card bills and loan EMIs on time every month. As per a CIBIL analysis (reported by the Financial Express), a 30-day delinquency can reduce your score by 100 points. If you have multiple credit cards as well as loans, it is advised to set up reminders and alerts, to avoid missing payments or delaying them. Any missed or overdue payments reflect poorly on your score and suggest that you are not consistent with repaying credit.

  • High Credit Utilisation Ratio:
  • One of the golden rules you should follow is to keep an eye on your credit utilisation ratio. It is the amount of credit used in proportion to the credit limit that is available to you. According to experts, you should ideally not exceed using 30% of your credit limit. For example, if your credit card limit is Rs.1 lakh, you should spend around Rs.30,000. If you have used over 50% of your credit limit, it can have a negative effect on your score. Having a high credit exposure will send a red flag to lenders as it indicates you are at a higher risk of defaulting.

  • Outstanding Debt:
  • You should always make sure to clear off your outstanding debts. When you have unpaid dues reflected on your credit report, it takes a toll on your score. It is advised to pay off the outstanding dues even if the amount is small.

  • Paying only the Minimum Amount Due:
  • A minimum amount due is a small portion of the principal that is outstanding every month. You may fall into a debt trap if you constantly pay only the minimum amount due. Rolling over the debt by paying only the minimum amount leads to the interest compounding on your outstanding balance. So, it is advised to pay your credit card bills in full. It also reflects poor repayment behaviour.

  • Making Multiple Credit Applications:
  • When you apply for a loan or a credit card, lenders will want to check your creditworthiness and they’ll do this by pulling out your credit report. This is called a hard inquiry. If you send out multiple applications, it will mean that multiple credit inquiries are occurring around the same time. These hard inquiries are reported and affect your score negatively. It will make you look credit hungry.

    If your loan or credit card application has been rejected recently, it is advised to not apply for credit immediately. It is better to improve your CIBIL score and then apply again.

  • Errors in your CIBIL Report:
  • Your CIBIL report has a detailed record of your current as well as past credit accounts. If there are any errors in your report, it can hamper your score. So, if you any discrepancies in your report, you must get them rectified immediately.

    These errors have to be rectified by your lenders only. CIBIL does not correct reports without lenders reporting the changes to be made.

    Also, checking your credit report can also help you identify if you are a victim of an identity theft.

  • Not Having a Credit Mix:
  • It is important to maintain a healthy balance of secured and unsecured loans. Home loans and auto loans are examples of secured loans while a credit card is an example of an unsecured loan. If you have a high number of only one type of credit, it can affect your score. Also, when you have a healthy mix of different types of loans, it suggests that you have experience in handling both different types of loans. This is considered desirable by lenders.

  • Length of the Credit History:
  • In simple terms, credit history means the total number of years that have passed since you have first opened a credit account. If you have a long credit history, it helps lenders take a sound decision at the time of offering you credit. It is better to focus on building a credit history in the earlier stage of life as, by the time you apply for a home or car loan, you will have a good record of credit transactions.

  • Closing old Credit Card Accounts:
  • Credit cards are a great tool to build credit history. However, when you close your old accounts, you end up losing a long credit history associated with it. Therefore, if you have used the card for a substantial number of years, it is advised to keep it open as long as possible, if feasible. Consider closing a card that is relatively new.

Benefits of Having a High CIBIL score

  • Quicker approval for loans and credit cards
  • Cheaper interest rates on loans
  • Better deals on credit cards
  • Credit cards with higher credit limit
  • Discount on processing fee and other charges for loan applications

It is important to check your CIBIL score from time to time. Make sure your score is above 750 to enjoy better access to credit products. You are entitled to receive one detailed credit report for free from CIBIL per calendar year.

News about CIBIL Score

  • FICCI Urges RBI to Relax Borrowing Norms for NBFCs

    Non-banking financial companies (NBFC) has urged the Reserve Bank of India (RBI) to relax the timeline to implement the minimum LCR norms by a year, according to a report by the ET. They have also asked the central bank to ease the implementation of LCR to 25 per cent from the RBI’s proposed limit of 60 per cent. The Federation of Indian Chambers of Commerce and Industry (FICCI) has written to the RBI seeking relaxed borrowing measures for NBFCs. The RBI had recently proposed tighter norms for NBFCs such as mandatory investments in government bonds and maintenance of cash thresholds. This was mainly proposed with an aim to enable them to tide over liquidity problems without causing disruptions to the broader financial system.

    In a letter to RBI governor, Shaktikanta Das, FICCI said that NBFC - infrastructure finance companies (IFC) should be allowed to issue tax-free bonds. This was proposed in a bid to mobilise long-term financing and use the funds for infrastructure development. FICCI added that IFCs which have been according Public Financial Institution (PFI) status, should be allowed to issue such tax-free bonds. Moreover, they should be allowed to issue non-convertible debentures to retail investors. FICCI also sought relaxed investment guidelines for insurance companies to subscribe to bond issuances by IFCs with a credit rating of ‘A-’. Presently insurance companies can invest in infrastructure companies with a credit rating of ‘A’ and above. But they are not allowed to invest in debt instruments that have a credit rating lower that ‘AA’.

    26 June 2019

  • RBI to Create New Cadre to Monitor Banks and NBFCs

    The central board of Reserve Bank of India (RBI) has established a new specialized supervisory and regulatory structure to streamline its supervision and regulation of commercial banks and non-banking financial companies (NBFCs). The move comes from the RBI to improve efficiency in banking supervision. The 576th meeting of the Central Board also reviewed the current economic situation, global and domestic challenges, and various areas of operations of the central bank. The meeting was chaired by RBI Governor Shaktikanta Das. The central bank is also looking to introduce risk-based supervision for NBFCs and urban cooperative banks, as per a report from PTI.

    The latest initiative comes from the apex body following the defaults in the NBFC sector and failure of credit rating agencies and regulatory authorities to identify the threat in advance. The board reviewed the present structure of supervision at the RBI in the context of the growing diversity, complexities, and interconnectedness within the Indian financial sector. At present, commercial banks follow risk-based supervision which focusses on evaluating present and future risks and facilitates early corrective action. Meanwhile, the supervision in case of NBFCs and urban cooperative banks is less stringent. The newly appointed cadre will ensure that there are early warning signals which will alert the regulator about an impending crisis.

    23 May 2019

  • S&P Global Revises Tata Steel’s Outlook From Stable to Positive

    Credit ratings agency S&P Global has revised the outlook of Tata Steel from stable to ‘positive’. The ratings of the country’s biggest steelmaker were revised owing to stable steel prices and improvement in earnings. As per S&P, the expectation that the acquisition of Bhushan Power and Steel is unlikely to happen which is expected to improve the company's credit ratios in the next 12 months. It is also expected that Tata Steel will record strong performance in terms of earning in the next 12 months.

    The credit rating agency has affirmed the 'B+' long-term and 'B' short-term issuer credit ratings on unit, Tata Steel UK Holdings Ltd (TSUKH). S&P expects EBITDA (Earnings before interest, taxes, depreciation, and amortization) to stabilise in between Rs.25,000 crore and Rs.27,000 crore, owing to benefits that the company is likely to get from stable international prices flowing through domestic prices.

    S&P expects supportive steel prices and benign raw material prices to continue and forecast TSUKH's funds from operations-to-debt ratio of 13-15 per cent over the next 12-24 months. The credit rating agency also noted that Tata Steel will continue to support its 100% subsidiary Tata Steel UK Holdings (TSUKH) when needed.

    4 April 2019

  • CIBIL says, women borrowers surpassed men borrowers

    There was a 48% increase in women borrowers between 2015-2018, according to a latest report from TransUnion CIBL. In comparison male borrowers who accounted for a larger user base were up only by 35%. The report revealed that 8.6 million first-time women borrowers are opening new loan accounts per year. Two-third of these women are from Maharashtra and four southern states Tamil Nadu, Kerala, Andhra Pradesh and Karnataka. Thanks to the increase in education of women, there will be an increase in the credit demand by women borrowers in the future. Moreover, there has also been a rise in the number of working women as well as increasing consumption of consumer durables in tier I and tier II markets.  

    CIBIL score is a measure of your ability to repay the loan. The report notes that the average CIBIL score among Indian women consumers is more than 770. Women’s demands for consumer loans, personal loans and two-wheeler loans has recorded year-on-year increase by 31%, 19% and 14% respectively. Women under 35 years had an average credit score of 773, while women between the age group 35-45 had a score of 776, and those above the age of 45 years had the highest average score of 785. As per the report, the 38% of women borrowers check their CIBIL score regularly. Harshala Chandorkar, COO, TransUnion CIBIL stated that more women borrowers will need credit owing to the rise in education of women, increasing consumption of consumer durables in tier I and tier II markets. 

    11 March 2019

  • Aavas Financiers stock up following credit rating upgrade from CARE

    Shares of Aavas Financiers’ stock has recorded an increase soon after CARE rating agency upgraded the company’s credit rating. The stock was trading at Rs.1,205 on the BSE. It has increased 21% since 1 March 2019 after CARE Ratings upgraded its credit rating to AA-/stable from A+/positive for long term bank facilities and long term instrument – subordinated debt. The rating agency reaffirmed A1+ rating on the proposed commercial paper issue. 

    Aavas Financiers assets quality improved with gross non-performing assets (NPAs) by 24 basis points to 0.58%. Meanwhile, the net NPAs registered a growth of 0.49% up 21 bps of the outstanding loan book as on 31 December 2018. CARE had upgraded the ratings owing to high growth opportunities in the affordable housing segment. Also, the company benefited from a well-experienced management team, comfortable liquidity and resource profile, and adequate risk management and control systems. 

    Aavas Financiers is a retail, affordable housing finance company which targets low and middle-income self-employed customers in semi-urban and rural areas in India. The company offers home loans for the buying new house/property or for construction of residential properties, among others. 

    7 March 2019

  • Moody's downgrades Lodha Developers' outlook to 'stable' owing to weak sales

    Moody's has downgraded Lodha Developers’ outlook from positive to stable as a result of weak operating sales during the first half of this financial year. The credit rating agency has affirmed the ratings of corporate family and bonds issued by realty major.  Saranga Ranasinghe, assistant vice-president and analyst, Moody's revealed that the company’s outlook has been changed owing to its weaker operating sales during the six months to September 2018. In addition, the company’s had high debt maturities in fiscal years ending March 2020 and March 2021. Lodha said the company would achieve Rs.9,500 crore of collections and it is also on track for net sales of about Rs.8,000 crore. The credit rating agency stated that Moody's total operating sales in the financial year ending March 2019 may be around 25% lower than in previous fiscal and around 38% lower than its previous expectations for 2018-19. Moreover, Moody's expects Lodha Developer’s leverage to remain weaker than required for a higher rating. In spite of the lower operating sales of the company, Moody's expects cash collections to be in line with expectations and around 20% per higher than in fiscal 2018. Lodha also has ready-to-move-in units, which are typically preferred by customers and also guaranteed. The realty firm has debt maturities of around Rs 1,300 crore in India over the next 12 months. 

    28 January 2019

  • Government of Maharashtra invests Rs.10 lakh in fintech startup HealthFin

    Fintech startup HealthFin has raised a funding worth Rs.10 lakh from the Maharashtra Government. The funding was secured as a part of the Mumbai Fintech Accelerator program initiated by the Maharashtra state government. Earlier in February this year, Maharashtra became the first state in India to launch a fintech policy. The initiative aims to promote innovative startups in the Maharashtra by means of encouraging and enabling the entrepreneurial ecosystem. Pune-based HealthFin which is incubated under the NASSCOM 10,000 Startups programme, offers medical loans suitable for different consumers. The main aim of the program is to promote innovative startups in the state by means of encouraging the entrepreneurial ecosystem. HealthFin offers financial assistance to people who don’t have medical insurance, or those who are under-insured and require immediate funds for treatment. The fintech startup has joined hands with hospitals to offer patients with quick loans via soft loan approval which would be given anytime between 15 mins to 12 hours depending on the profiling and CIBIL score of the potential borrower. At present, Healthfin’s services can be accessed by patients across six cities including Pune, Mumbai, Nagpur, Nashik and others through 40 major hospitals and speciality clinics.

    3 December 2018

  • Top Ways to Boost Your CIBIL score for a Loan application

    If you are planning to get any kind of loan like personal, home, or car you need to maintain a high CIBIL score. A CIBIL score makes it easier for lenders to measure your ability to handle and repay the credit.

    What is a CIBIL Score?

    A CIBIL score is generated by the CIBIL after considering an individual’s detailed credit information. It is a three-digit number between 300-900, 900 being the highest, that represents an individual’s creditworthiness. A higher CIBIL score suggests good credit history and responsible repayment behavior. Quick loan approvals, low interest rate credit cards, home loans and car loans, approval for higher credit limits are some of the advantages of a healthy credit score. A CIBIL score of 750 and above is considered as ideal. A CIBIL score is calculated on the basis of your credit history, credit type and credit exposure. Factors like repayment history, amount of debt, age of credit history, type of debt and number of credit enquiries have a negative impact on your CIBIL score.

    Here are some of the top ways to improve your CIBIL score:

      • Timely payments of bills: It is important to pay all your utility bills and EMIs on time. A responsible payment behaviour suggests that you have the ability to manage your debt efficiently. Avoid delays in paying your bills to maintain a good credit. Never pay minimum amount due on your bills as it will reflect badly on your credit score. It suggests that you are struggling to repay your credit debts.

      • Review your credit report: Make sure to check your CIBIL report from time-to-time as there is a possibility it might have errors. If you come across errors related to wrong account, personal information, and so on. You can raise a dispute with CIBIL for the same.

      • Monitor your CIBIL Score: It is better to check your CIBIL score from time to time. All credit bureaus offer one free credit report that includes your CIBIL score.

      • Increase your credit limit: Request your credit card issuer to increase your credit limit. A credit limit is the total amount you can borrow through the card.

      • Maintain low credit utilization: Take efforts to maintain a low credit utilization ratio. This essentially means, the utilization amount should be lower than the credit limit of a card.

      • Limit the hard enquiries: A hard enquiry takes place by the lenders like banks or non-banking finance companies (NBFC) when you apply for a loan.

      • Do not remove old accounts from report: Do not remove old accounts, deactivated accounts or accounts with negative history from your credit report. Your credit score will be harmed if you remove old accounts that may have a good repayment history

    23 August 2018

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