It is a well-accepted fact that credit score reflects the creditworthiness of an individual and influences their probability to secure credit. Typically, most lending institutions consider 750 or above as a good credit score and favor loan applicants who possess the same over others.
Notably, there are several factors like credit type, repayment record, credit utilization rate, etc. that tend to influence one’s credit score to a great extent. The fact that many individuals do not know how these factors make it all the more important to find out about them in detail. Doing so, they will not just be able to maintain a good credit score but will also be able to reap its associated benefits.
Things to know about credit score
The one thing that individuals must know right from the beginning is the difference between credit score and credit report or history. Credit history serves as a detailed record of an individual’s credit transactions, debt collection accounts, etc.
On the other hand, the credit score is simply a numerical summary representing the status of your credit history in general. Hence, a good CIBIL score reflects a good CIBIL report.
As discussed, a good credit score helps to obtain necessary financial assistance much easily. Furthermore, it is one of the factors affecting personal loan interest rates and loan value sanctioned by leading financial institutions.
Notably, these following factors tend to influence the CIBIL score.
- Payment history: A clean payment history accounts for 35% of one’s credit score.
- Credit utilisation ratio: It makes up about 30% of one’s scores.
- Type of credit: Includes short-term, long-term loans that are either secured or unsecured.
- Age of debt: It signifies the vintage of an individual’s credit account. Accounts that are older than 10 years signify active and responsible management of loans.
- Credit inquiries: Enquiries are mostly executed by lenders who intend to check an applicant’s financial standing and credit history before approving their personal loan plea.
Tips to improve credit score
By following these tips, individuals can increase the CIBIL score.
1. Paying bills on time
Both late payments and defaults tend to stay on the credit report for 7 years. This, in turn, has a detrimental effect on one’s credit score. Therefore, the key to prevent the same is by paying dues on time.
2. Paying dues in full
Though most individuals intend to pay the minimum due amount to lower their credit card interest burden, it is more important to pay the due in full. It directly helps to reduce the credit utilisation ratio.
3. Limiting credit utilisation ratio
By keeping the credit utilisation ratio lower to around 30% of the limit, individuals can maintain a good credit score and improve it over time.
4. Refraining from making too many credit applications
Credit checks made by financial institutions to check an applicant’s creditworthiness leaves hard inquiries on the credit report. When too many inquiries are made, it hampers the credit score significantly. So, to maintain a good CIBIL score, individuals should refrain from applying for too many loans at once.
Hence, borrowers should learn about the factors which play a vital role in achieving a good credit score. While at it, they must also find out the different ways in which CIBIL score is important for personal lending.
5. Maintaining a diverse debt portfolio for a long tenor
Including different types of credits like unsecured and secured advances for long-term and short-term tenor helps create a diverse debt portfolio. In turn, it helps to create an impression that individuals can manage their credit responsibly.
Furthermore, individuals may opt for financial institutions like Bajaj Finserv, which extends convenient repayment options to ensure the entire loan is paid off easily.
They also provide pre-approved offers to customers to make the entire process more fulfilling. Such offers are provided on financial products like personal loans, business loans, etc. Check your pre-approved offers by entering your name and contact number.
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