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Top CIBIL score Improvement Factors

A credit score is a number that stands a person's creditworthiness. This is a statistically compiled numeric value that lenders widely use to ascertain how likely a person taking a loan will pay it back. The common inference being that if a person has behaved responsibly to pay back his loans in the past, he will continue to do so in the future.

Past behaviour in paying back loans is called credit history and a person’s creditworthiness is built around that. In India, Credit rating and Information Bureau of India Ltd. (CIBIL) is the statutory body that maintains a database of credit standings of individuals and commercial entities.

In India the credit score for an individual ranges between 300-900. A good CIBIL score is considered to be 750+ in India. The higher it is, the higher a borrower’s credit standing.

How Credit Scores Go Bad?

So much of credit related data is shrouded in misinformation and secrecy and people are often not advised to use their credit sources responsibly. So people might have acted in ignorance but end up with a bad credit score.

There are several factors that affect credit scores and their importance varies. But there is general agreement on factors that go into developing credit scores.

Improper credit utilization: Credit utilization is simply the ratio between how much credit you are sanctioned and what percentage of it you are using. This means what is the upper limit of all your credit cards and where you stand in terms of their usage. If you use a very high percentage of your limit, your credit score may turn bad.

History of past repayment: The first and foremost thing that a lender looks for is your past behavior in repaying debt. If you have paid all your debts in full and in time, your credit standing is good. But if you have defaulted or your payments are irregular, it will have a negative impact on your credit score.

Length of debt-servicing: How long you have been availing credit and servicing it is also a determinant in your credit score. New applicants for credit usually have a low credit score than people who are already using credit for a while.

The right mix of credit: Credit rating agencies also look at what types of credit and whether you have got the right mix. Availing multiple sources of credit like credit cards, personal loans and secured loans is a better idea than relying on any source excessively.

New credit applications: The frequency at which you have applied for a new credit also has a bearing on your credit score. Lenders can actually see how many times you have applied and how many times you have been approved/rejected so applying way too many times can reflect badly.

A good Credit Score could be the difference between a successful or rejected loan/Credit Card application. Don’t know your Credit Score?

  1. Good Score:
  2. A Credit Score of 750 and above is considered a good score. It’s not that you won’t get loans or Credit Cards with a lower score, but the terms might not be as favourable.

  3. What’s The Benefit Of A Good Score?
  4. A good Credit Score not only helps you get loans and Credit Cards easily, you may also get favorable terms like a lower interest rate, longer tenure, etc.

  5. How Do I Get A Good Score?
  6. Always pay your Credit Card bills and loan EMIs on time. A mix of secured and unsecured credit also goes towards building your Credit Score.

  7. How Does It Help To Know My Score?
  8. Checking your score regularly is a good financial practice. It’ll help you spot and rectify errors in your Credit Report that could hurt your score.

    It’s important to check your Credit Score, that’s why BankBazaar lets you check it for FREE.

Top 5 Credit Score Improvement Factors:

As a borrower, you can maintain a responsible and punctual approach towards paying your loans that in the long-run can improve your credit score. Here are top 5 steps you can take to achieve this:

  1. Check your credit score before applying: Since CIBIL lets consumers get credit scores directly and instantly on their website, you can always check your score before applying for a fresh loan or credit card. By paying only Rs. 470, you can get it electronically or by post. This helps in two ways—you can be sure that there are no negative factors on your credit score and confidently apply and since lenders can also see which other lender has rejected your application, restrain from going ahead if your score is not in the desired range.
  2. Be punctual in your credit card payments: Do not default on your credit card or loan payments as it can create a negative shadow on your creditworthiness. You can fall back on your friends and relatives for short-term loans just to meet these deadlines of credit card payments or loan instalments.
  3. If you do not have credit history, create one: Some first-timers may not have a credit history to for lenders to go on. For them the credit score is zero or zilch and that’s why banks and financial institutions may hesitate to sanction them a loan. But they can get around this problem by opening a fixed deposit and then taking a credit card against it. By making regular payments on this credit card, they can improve their credit score.
  4. Spread usage across different card limits: If you have several credit cards but use only one to spend extensively, your credit score can be adversely affected. It is wiser to spread your expenditure over several credit cards instead of using a larger percentage on a single card.
  5. Do not raise disputes unnecessarily: If it is a case of undue charges, fraudulent transactions or interest rates that crops up on your credit card statements, contact the customer care department of your credit card issuer. But if you’ve made a late payment and are charged penal interest, do not unnecessarily raise disputes. If you do so, credit card companies may freeze your card and that can affect your credit score.

How Does CIBIL Keep Track of Your Credit Score?

When you spend on your credit card or make a loan repayment, your bank keeps a record of it. The bank or financial institution shares these records with CIBIL on a monthly basis. This goes to generate your Credit Information Report (CIR) or score which other lenders can use to determine your creditworthiness. Thus, CIBIL is the definitive agency to help assess risk profiles of borrowers. It lends a degree of safety to banks and financial institutions in its lending processes.

How do Lenders Use Credit Scores?

In the loan approval process, the TransUnion Score and the Credit Information Report (CIR)—both generated by CIBIL—play a crucial role. This information is available online and lenders can directly access these data points to see if the loan applicant qualifies. The score essentially is a glance at an individual’s credit history, his/her current loan commitments and repayment ability. After these checks, lenders may ask borrowers for documents like identity proof, address proof and proof of income so that the loan may finally be sanctioned.

News About Top CIBIL score improvement factors

  • ICRA says securitisation volumes to hit Rs.2 trillion in FY20

    Credit rating agency ICRA has stated that for the remaining FY20, the securitisation market will touch an all-time high and hit Rs.2 trillion. The rise in the volume of securitisation is attributed to a strong non-bank asset sale, reported the Mint. In Q1 FY20, mortgage loans constituted the largest asset class with around in direct assignment market and around 46% share. Meanwhile, other asset classes like micro loans had a share of around 20% and vehicle loans constituted for around 17% share. Investors continued to invest owing to priority nature of these assets, added ICRA.

    There is a strong growth in the securitisation market owing to the liquidity crisis in the non-banking financial company (NBFC) sector. The credit rating agency revealed that the Indian securitisation market, in the June FY20 quarter recorded the highest issuance volumes seen in the first quarter of any financial year at Rs.50,300 crore, registering a year-on-year (y-o-y) growth of 56%. Meanwhile, in Q1FY19, the securitisation volumes were Rs.32,300 crore and Rs.1.99 trillion for the entire FY19. Vibhor Mittal, group head – structured finance ratings at ICRA said NBFCs and housing finance companies (HFCs) gave further insights on the securitisation market. As per ICRA estimates, the PTC transaction volumes increased by 95% to Rs.22,000 crore in Q1 FY20 from Rs.11,300 crore in Q1 FY19, while volumes for direct assignment transactions increased by around 35% y-o-y to Rs.28,300 crore.

    18 July 2019

  • India’s economy to surge at 7.3% in 2019 and 2020: Moody’s

    Credit rating agency Moody’s has revealed that India's economy will grow at 7.3% in the next two years as it is less exposed to the global slowdown. The US-based rating agency revealed the data in its quarterly Global Macro Outlook for 2019 and 2020. Its outlooks are based on the calendar year (January-December). 

    Moody’s stated that the global economy weakened significantly in Q4 2018 and will continue to weaken throughout 2019 and into 2020. India and Indonesia are expected to increase at a relatively stable pace, though below their respective potential. 

    Moody's said the government spending announced ahead of elections this year will support near-term growth in India by increasing consumption. Also, the Reserve Bank of India (RBI) is likely to maintain its current monetary policy stance after some tightening last year. Tax relief measures for the middle class as well as the direct cash transfer program for farmers will contribute a fiscal stimulus of about 0.45% of GDP.  

    Moody's said the overall strength of the banking system, which got capital infusion from the government in February, is improving but it remains a constraint on the economy. According to the RBI, non-performing assets declined to 10.8% in September 2018 from a peak of 11.5% in March 2018. The central bank expects this ratio to improve further to 10.3% in March 2019.  

    1 March 2019

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