While applying for a new line of credit, you may have heard of lending institutions mentioning a ‘credit scores’, and how they can make or break your application. In fact, loan applications are rejected every day because the applicant had a bad credit score. Keeping this in mind, we can safely say that your credit score is quite literally the most decisive factor that determines your ability to avail of a loan.
But do you exactly know what a credit score is or what it entails? Well, read on to find out everything you’ve always wanted to know about this important metric.
Credit score explained
A credit score, by definition, is a representation of your loan worthiness. Whether you‘re applying for a credit card or a loan, your credit score plays an important role. It takes into account your Credit Information Report (CIR), which includes all the data regarding your finances—how timely you’ve been in making your payments, if you’ve defaulted on any loans, or how often you’ve applied for financial assistance, and why.
Credit score calculation
Credit Information Bureau India Limited (CIBIL), formed in 2000, is one of the most important organisations that set the guidelines of how to calculate credit scores. According to the guidelines set by the Reserve Bank of India, your CIBIL/credit score depends on 5 equally-essential parameters.
These parameters include:
- Your credit repayment history, which makes up about 35% of the overall score
- Current debt, which makes up to 30%
- Any new credit you’ve applied for recently, which comes up to about 10%
- The diversity of your credit schemes adds a weightage of 10%
- The duration of time you’ve used been in debt for makes up for the last 15%
What is a good credit/CIBIL score?
According to the latest norms, the CIBIL Transunion Score or simply CIBIL 2.0, a score anywhere between 700 to 900 is considered ideal in order to avail of a loan. 900 is the best possible score you can ever have and signifies a flawless financial track record. However, the credit score required to qualify for a loan may differ depending upon the type of loan you’re applying for.
CIBIL score for Personal Loan
Personal loans are loans which you use to fulfil monetary requirement such as taking a vacation, buying a consumer durable, or to consolidate a long-standing credit card debt. The average credit score for you to get a personal loan approved would be anywhere between 650 to 750.
If you’ve got your credit scores in check and need a personal loan, opt for loans offered by lenders like Bajaj Finserv. They provide loans of up to INR 25 lakh, with benefits like part-prepayment facility and instant online approvals. Check Bajaj Finserv Personal Loan section to know more!
CIBIL score for Home Loan
Home loans are one of the most popular loans on the market because the number of prospective homeowners keeps increasing every day. Now your query will be how much credit score is needed to apply for a Home Loan? The ideal score required to apply and successfully get approved for a home loan is anywhere between 750 to 800. Applications are likely to be rejected if the scores are any lower than the stated limit.
With the increasing number of banking and other lending institutions present in the market, availing a home loan is very simple. Home loans provided by Bajaj Finserv, for example, come with extremely low interest rates and benefits like instant approval and flexi schemes. Check Bajaj Finserv Home Loan section to know more!
What are the factors that impact your credit score?
There are four major factors that can affect a good credit history. These are listed below.
Your payment history
If you delay or don’t make a payment, your credit rating is adversely affected. The lapses in your score are shown on your credit profile, resulting in a bad credit score.
Over-using credit limit
When you use your credit card too often, it indicates that you have a high need for money, which further impacts your ability to repay. This decreases your credit score.
Too many unsecured loans
There’s always needs to be a balance between unsecured and secured loans in your history. This makes you a more viable choice for lenders. To maintain a good credit score, you must develop trust by making your payments on time, while cutting down on your unsecured loans.
Too many loan accounts
When you add multiple loans and credit cards onto your list of expenses, you tend to decrease the quality of your credit report. This is because the extra burden might keep you from being able to make regular payments.
How long does it take to repair your credit score? Is a commonly voiced concern. Read this article to learn more Or read on to understand How you can maintain a good credit score and keep a track of it.
How can you maintain a good credit score?
- Always make sure to repay your loans on time, no matter how big or small they are. This counts much more than you may think
- Never try to overextend your credit limit unless you see no other option
- Keep a check on the number of credit applications you submit. Each time you opt for a new line of credit, the bank applies to see your CIBIL report to check your status. Too many enquiries will impact your score
- Make sure to pay your bills promptly. Also clear all overdue bills as soon as possible
- Make a habit of checking your credit report every once in awhile. Clerical mistakes, although rare, may occur. Report any such discrepancies and get them corrected immediately. You can visit CIBIL’s website and order a copy of your credit score.
There you have it. This is a definitive guide to credit scores. Now that you know, keep track of your score and always be wary of your financial situation. Tread carefully and avoid unnecessary mistakes.