Factors Affecting Credit Score Calculation and How it’s Done?

A credit score is a three-digit numerical representation of your credit history. It is compiled in the Credit Information Report, or CIR, and is based on data gathered from lenders.

Financial organisations consider your credit history and score when deciding whether to give you money, how much, and at what interest rate. Credit rating firms like Credit Information Bureau (India) Ltd collect information and compile credit scores.

What is the importance of credit score?

A credit score is a three-digit number that indicates how creditworthy you are. When you apply for a loan or a credit card, it’s the first thing lenders look at. It provides them an indication of whether you’ll be able to repay the loan on time or not. As a result, maintaining a decent credit score is critical. Making all your payments on schedule, monitoring your credit reports frequently, paying off existing credit card debt, and keeping your credit utilisation low below 30% can help you maintain your credit score.

What exactly is a CIBIL Score?

TransUnion CIBIL’s CIBIL score is a three-digit number that evaluates a person’s creditworthiness. Several factors influence this score, including the person’s payment history, loans or credit cards owned, credit usage rate, and so on. A person’s CIBIL score might range from 300 to 900. A CIBIL score of 750 or more is considered outstanding by lenders.

Candidates with this score will, in most cases, be approved for loans and credit cards promptly, if not immediately. Many lenders offer pre-approved loans to customers who have a good credit score and meet other requirements. Credit cards and loans are frequently available to those with credit scores as low as 750 from a variety of financial organisations.

What is the importance of the CIBIL score?

Any financial institution’s primary purpose is to make loans. To qualify for a lender’s loan products, a person must meet specific criteria. A borrower’s CIBIL score is one of the essential considerations in determining whether they are eligible for any given loan. It assists a lender in providing loans to qualified applicants while protecting their interests from loss.

When applying for a loan or a credit card, one must ensure that their CIBIL score is in good standing. Borrowers must be aware of their creditworthiness because lenders look at the borrower’s CIBIL score when approving a loan application; thus, a good CIBIL score is critical. Many people, however, are unaware of how regularly they should acquire and review their credit report. 

Factors affecting Credit score:

The following variables may influence your credit score:

1. Credit Usage Ceiling

Your credit score may be negatively impacted if you repeatedly demonstrate an inability to adjust your spending patterns to fit within your means. Beyond a certain point, increasing credit use has a negative impact since it is seen as reckless spending.

By dividing the amount owed by the credit limit, the credit utilisation rate is determined. About 25% of your credit score is determined by how much of your credit you are currently using.

2. History of Repayment

In large part, your credit score reflects how quickly you have historically paid off your bills. Your credit score will suffer if you miss any credit card or loan payments. The negative effects on your credit score are more severe the longer your credit card bills go delinquent and the more frequently they go unpaid.

About 30% of your credit score is determined by your repayment history.

3.  Credit Blend

A combination of secured and unsecured loans constitutes the best credit mix. Secured loans are those where the lender must pledge an asset in order to obtain the loan. These loans include mortgages, auto loans, and more. Unsecured loans lack any form of collateral security and are therefore referred to as such. Taking out and repaying various forms of credit increases your lender’s confidence, which boosts your credit score.

At the very least once every year, get a copy of your credit report and check it for errors. To be able to negotiate credit at lower rates in the future, work to maintain and grow a strong credit score.

4. The quantity of credit inquiries

Lenders perform a hard inquiry into your credit report when you apply for any new type of credit. The hard check is done to evaluate your ability to repay the loan and could be the deciding factor in whether your loan is approved. Applying for loans at several different organisations gives the impression that you are credit-hungry. Every lender’s main worry is getting their money back on time, thus aggressively seeking for loans from several lenders gives the appearance that you might have difficulties paying back your loan instalments in the future.

Making several inquiries to different lenders lowers your credit score by about 20%.

5. Credit History Duration

Banks keep thorough records of your credit history. A thorough record of your credit history is available to prospective lenders as soon as you apply for credit. Your credit score is positively impacted by a lengthy, solid credit history, which can also make obtaining credit history simpler. It may be wise to keep your old credit cards even if you no longer need to use them because lending organisations place importance on a lengthy history of reliable and timely repayment. Your credit score could decrease if you close outdated credit cards.

What is the best way to check one’s CIBIL score?

Let’s start with a definition of CIBIL (Credit Information Bureau (India) Limited). In India, CIBIL is a significant credit rating agency that assesses your creditworthiness. India can readily be described as a financially literate country because to CIBIL. It has improved the transparency, reliability, and structure of financial markets in order to raise awareness among financial institutions and businesses on how to manage risks and control bad loans.

A CIBIL check is done via the internet. Before giving any loan, banks and financial institutions assess the CIBIL score. Examine your credit profile on a regular basis to ensure that it accurately reflects your creditworthiness and is free of errors and anomalies. This allows you to keep track of changes and spot questionable activity. Here’s how to check their CIBIL score online in a variety of ways.

1. Through the CIBIL website

• Click “Get Your CIBIL Score” on the CIBIL official website.
• Complete the form with the necessary information (Name, DOB, ID proof, loan history).
• After submitting the form, you will be directed to the payment page. To obtain a credit report, CIBIL charges a fee.
• After you’ve made your payment, you’ll be directed to the authentication page. For authentication, at least three of the five questions about your credit history must be answered accurately. The report will be provided to your mailbox within 24 hours after it has been validated.

2. Use your Aadhaar card to check your CIBIL score.

For address verification, an Aadhaar card is necessary. For all the ways to check CIBIL score online, the address given must match the address on the Aadhaar Card.

3. Obtain a CIBIL Score by Entering Your Phone Number

Personal information must first be entered on the site in order to check your CIBIL score via mobile number. The user must then confirm their identification by sharing the one-time password (OTP) that they are given. To see their CIBIL score, they must submit the same information on the next page.

4. Besides income, CIBIL Score is one of the most important factors lenders consider when approving loans. The Credit Information Bureau India Limited, in collaboration with different authorised credit bureaus throughout the nation, calculates the CIBIL score. Your payment record, payment behaviour, current credit outlets, and the quantity of credit you have are factors in your score. 

5. Use your PAN card to check your CIBIL score.

You can check your CIBIL  score by using pan number, Visit the TransUnion CIBIL website to get a free CIBIL score.

• Complete the form with the necessary information (name, DOB)
• For ID proof, choose ‘Income Tax ID Number (PAN)’ and fill in the required details.
• Select the sort of income and the amount of money you earn each month.
• Submit your address and contact information, such as your phone number and email address.
• Within 24 hours, you will receive the free report in your mailbox.

Over the past ten years, the loan business in India has seen significant upheaval. The credit bureau has promoted financial literacy and exhorted consumers to maintain strong credit ratings. Such guidelines cannot be created because a personal loan is an unsecured debt. So, with a CIBIL score of 550, you are eligible for a personal loan. Borrowers who are interested in learning more about their financial situation can obtain their CIBIL report. People are motivated to maintain order in their finances when they are aware of how much money they can borrow, thus proving it to be a beneficial tool for boosting your financial situation.

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