What is Credit Score or the CIBIL Score?
A Credit Score or the CIBIL Score is a numerical expression which is based on the credit files which represents the creditworthiness. It is a numeric summary of an Individual’s credit history. It shows how much credit is acquired and how much have been repaid. Also, it shows if you have missed making any payments.
How is credit score calculated?
A Credit score is calculated based on individual’s credit report based on the algorithm calculations. Credit scores are calculated on the basis of at least 6 months of historical financial data of an individual. The Loan payment behavior of an individual is the most important element of the score composition.
The score is calculated based on the following factors:
- Credit Utilization: How much credit is the consumer is using throughout the year.
- Track Past Payment Records: Record of all past repayments. Making Payments on time leads to a higher score & Delayed payments leads to a low score.
- Credit Type: Type of loan availed whether it is secured or unsecured loan and the duration of credit history affects CIBIL score. Low loan balance is a healthy credit usage and thus higher score. High loan balance reduces the score.
- Attributes: How old are the consumer’s lines of credit? What type of credit does a consumer have?
CIBIL Score Range
A CIBIL credit score can range from 300 to 900. 300 considered as a low score and 900 being the best score possible. The closer you are to 900, the more confidence the credit institution will have in consumers ability to repay the loan and hence, the better the chances of an application getting approved. Score range above 750 is considered a good credit score.
Here is what your score could mean
0 or -1: If the scoreis 0 then it just means that an individual has no credit history created via a credit card or loans.
350 – 550: This is considering being a bad score. It means you have been defaulting on payments and the chances of getting new loans/credit cards are very less.
550 – 650: This is an acceptable region to be in since it indicates that you are regular with your payments and can be trusted with new loans and cards. Your loan applications are also likely to be approved.
650 – 750: You are on the right path. A consumer will not face too many problems with loans and credit cards.
750 – 900: This is the ideal range to be in. It indicates that an individual is a regular with credit payments and have a really good payment history. Banks will tend to be very will to offer you credit products with such a score.
Effective ways to increase Credit Score or the CIBIL Score
With some efforts, a consumer with bad or low CIBIL score can improve his rating and can become creditworthy again. The higher score an individual is able to collect, the higher the probability of attracting lenders to offer better deals on loans. If you understand the scoring pattern, you are on right track to follow the next few steps to improve your CIBIL rating score card.
- Clean & manage your Credit Cards – Pay off all your credit card outstanding due is a vital key to improving your rating. One should Plan the credit card spending in such a manner that the due clear off before the due dates arrive. This will go a long way to positively increase the CIBIL score. Good financial behavior and discipline are what lenders seek in their customers.
- Pay full dues:Every bill will show you minimum amount due. You should always make sure that you pay your entire amount, because the remaining amount will show as overdue in your CIBIL score. Pay back the entire amount or at least a sizable amount. Also the banks will charge interest on the entire amount even if you pay minimum amount due.
- Get a mixed bag of credit: There are two types of loans, secured loans and unsecured loans. If you take too many unsecured loans, banks tend to see it as a negative and might decline your loans. One can take both unsecured loans like personal loans and secured loans likes car and home loans. P.S Credit cards also counts as unsecured credit.
- Increase your credit limit: To increase the overall credit limit one should get a new credit card, which in turn lowers your credit utilization ratio. The more credit that lenders approve you for, the more trustworthy you seem to other lenders for credit/loan. As a bonus, look for a credit card that has some great perks like cash back incentives, so you can earn money while you use it.