A loan or a credit is an effective way to buy things you may not be able to pay for at the moment. Loans are available from various banks, NBFCs and other lending institutions. But your financial profile will be thoroughly assessed before you get approval for your loan.
If you want to check home loan eligibility for your housing needs, it is essential to calculate your credit score.
Your credit score is one of the most critical factors determining your loan eligibility. CIBIL (Credit Information Bureau Limited) calculates your credit score which is a key indicator of your creditworthiness.
Read below to know more about CIBIL score and how you can improve your credit score to increase your chances of securing a loan.
What is CIBIL Score?
The CIBIL Score is a three-digit numerical representation of your credit history provided by the credit bureau, CIBIL. The CIBIL Report contains details of all credit related transactions of the individual or business entity. Credit cards and loans are used by people today to help them realise their objectives and financial goals. One of the most significant parameters in obtaining this much-needed credit is the CIBIL score.
Factors Affecting the CIBIL Score
Lenders use the credit score to determine whether an applicant should be granted a loan. If you are wondering what CIBIL score is and what are the factors affecting it, read below to understand it.
1. Credit Repayment History
Credit repayment demonstrates your consistency in making timely payments. Your credit score will improve if you pay your bills on time.
2. Credit Utilisation Ratio
Credit utilisation shows your overall credit limit and how much of it you’ve used so far, i.e. how much you owe. Therefore, maintaining a less than 30% credit usage ratio is recommended.
3. Credit Age
Credit age is calculated from the day you were granted your first credit. The older your credit age, the higher your credit score will be. This is a misconception – someone with a credit account for at least a few years will be favored over someone very new to the credit market. If you are taking a loan for the first time, the lenders will focus on other eligibility criteria. But, a credit score age does impact eligibility.
4. Multiple Credit Avenues
The lender checks your credit record every time you apply for a loan. A hard inquiry is another name for this activity. Your account is thoroughly scrutinised when you send out several applications. It will affect your credit score, but it will also demonstrate your desire for credit. Think before applying for a particular line of credit, especially if your previous application was denied.
While having a less diverse credit portfolio does not always mean you have worse credit ratings, the more credit kinds you have is better. It is because the credit mix makes up 10% of your credit score and can help you enhance it.
How to improve my CIBIL score?
Avoid Taking Multiple Loans at a Time
It is advisable to settle your present loan before taking out another. Taking multiple loans simultaneously indicates that you may not have enough money to repay them. It is preferable to take out one loan at a time and pay it off in full to improve your credit score.
Increase your Credit Limit
If your bank asks you to increase your credit limit on your card, explore the option. You may also request this increase from your bank. It does not imply you will have to spend more money every month; instead, you will have to be more strategic in using this enhanced credit limit.
Timely Payments
Many people fall prey to impulsive shopping habits, especially when they have a credit card. With such rash spending, your bills may quickly outstrip your capacity to pay them on time. So, if rash spending is the cause of your payment delay or default, take appropriate action.Your inability to repay the huge spending will result in late payment fees and interest charged thereof. It may turn into a vicious cycle, risking a substantial drop in your credit score. Making timely payments ensures that when you check your home loan eligibility, your chances of securing a loan increase.
Check your CIBIL credit report regularly:
Check your CIBIL score frequently to ensure that the information in the report is correct. If you uncover any errors or omissions, correct them right away so that they do not affect your CIBIL score.
Keep the above factors in mind to improve your CIBIL score. A higher score will increase your chance of securing a loan. Many NBFCs offer attractive rates for loans for people with a high CIBIL score. Therefore, utilise your credit wisely and work towards increasing your credit score.
