Imagine you have a friend or relative who keeps borrowing money; money that you know will never make its way back to you! Now once you’re aware of this, it’s likely that you’ll walk the other way and avoid lending to them. It’s the same with financial institutions, including banks. According to data by the RBI, personal loans accounted for 41.6% of incremental credit growth during FY17. The growing credit economy requires banks to be more discerning and cautious while giving out loans and they do this by looking at CIBIL scores.
CIBIL™ is one of India’s authorized credit bureaus that produce a three-digit credit score for individuals depending on their financial history. The score can range anywhere from 300 to 900, with 300 being the lower range. This score is used to assess ones’ creditworthiness; in other words, it decides if you’re eligible for a loan! To be able to take a personal loan, you need to have a credit score of at least 750. The higher your credit score, the sooner you’ll see that money. As for how this number is calculated? Well, it’s a complex algorithm that considers your credit card history, EMIs, your number of bank transactions, outstanding payments, and more.
Here are a few factors that can affect your credit scores
Repayments: If you’re able to pay your credit card dues on time, even clear it well before the due date, that works in your favor. On the other hand, maxing out that card or making late payments can decrease your credit scores.
Usage of credit limit: With banks increasing the credit limit, it’s important to ensure that your usage is basic and minimal. Individuals who constantly use up to 75% of the credit limit may find their scores declining.
Credit Applications: If you have accumulated debt on multiple credit cards, loans, and other mediums, it indicates a lack of cautious financial planning, something that doesn’t bode well for your credit scores or loan application
Credit can be a boon or a bane, depending on how you use it. By planning finances & honoring debt repayment, you can enjoy easy loans, minus the hassle. Want to know more about it?