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When it comes to spending money, we do not hesitate to indulge. Over a period of time, our spending habits have become an integral part of our credit history. A credit history is a good snapshot of our spending behaviour. It enables banks to know if you, as an individual, have financial stability when they consider a loan or a credit application. The credit history is best expressed in the form of a CIBIL credit score. Thus, it becomes mandatory to maintain a good CIBIL score.
A credit score ranges between 300 to 900. The closer your score to 900, the healthier your credit rating. A good credit score ranges from 750 to 900. A minimum score of 750 is considered suitable by banks for a successful loan application. If you have a score less than 700, banks will consider the risk of non-payment and will not easily provide you a loan or credit card. Thus, you should have a score of 750 when applying for a loan from the bank.
A CIBIL score is generated by TransUnion CIBIL Limited, the official credit bureau of India. It holds and maintains financial records of corporates and individuals with reference to their credit history. CIBIL also keeps a tack of payment behaviours, which means that when there is a default on a payment or equated monthly installment (EMIs), it is recorded in the history and when banks request for someone’s history, the details regarding the defaulted payment are also mentioned in it.
If you have a poor credit score, it does not mean that you will never get a loan from a bank. You can always take steps to repair your credit score. So, keep these following things in mind:
Always pay your bills on time - Yes, you must ensure that all of your bills, EMIs, pending payments are always met on time or at the due date. This is the first and fundamental step towards rebuilding your CIBIL credit score. If certain payments are always met on time, it indicates responsible behaviour towards managing credit. You are looked upon as a responsible and law-abiding citizen in the eyes of the bank. This, in turn, will attract potential lenders and will improve your credit score over a time period.
Identity your current status - It is always good to know your updated credit score even if you do not require a loan or a credit card. One reason to obtain your credit information report is to check if there are no errors. In case you have successfully settled a previous loan and it has not been updated in your latest credit report, it is essential that you get this information rectified. This practice will put an immediate stop to a negative effect on your score and will reduces the chances of fraud.
Settle your credit cards bills - Always make a full and final payment of your credit card bill on the due date. Every bank provides two options to make a payment at the due date - make a complete payment or pay a selected minimum amount to the bank. The latter option can ease the financial burden but with respect to CIBIL, the remaining is considered as an overdue amount, which means that your financial management is not good. This will further downgrade your credit score.
Close all settled accounts - If you have successfully paid your credit card bill, ensure that the bank has updated your account status from ‘Settled’ to ‘Closed’. A ‘Settled’ status means that you have not made a complete payment on your credit card bill. A closed status will have a significant positive impact on your credit score.
Emergency Fund - Allocate a part of your monthly savings to create an emergency fund. An emergency fund provides financial aid to meet certain contingencies. If you already have an emergency fund, you are more likely to prevent yourself from getting a loan or collecting more debt. Although this habit has got nothing to do with your CIBIL score, it will inculcate a habit of savings and creating an emergency fund is a good way to avoid credit for small things.
Limit your existing spending - One of the fastest ways to improve your credit score is to minimise expenditure from your credit card to its full limit. Keep the maximum spending limit at 25%. Depleting your existing credit limit on a regular basis can drop your credit score. Also, it brings about a lack a financial discipline.
Keep a healthy portfolio - A healthy investment portfolio means that you have a suitable mix of credit and debit instruments or secured/unsecured loans. It is advisable to get rid of your unsecured borrowings as soon as possible. A personal loan is a type of an unsecured loan. If there are too many personal loans or credit card dues, it will make banks cautious about extending a line of credit.
Avoid multiple applications - It is advisable to not apply for multiple loans or credit cards at the same time from different banks. This can lead to multiple rejections and every single rejection is a negative marking on your credit score. Instead of just taking one type of loan all the time, take a home loan, then a personal loan and then maybe a car loan, etc.
Request for additional credit - Do not request for additional credit over and above your existing credit limit. Also, it is better to wait for a few months before applying for a new loan if you have recently closed a previous loan account.
What is CIBIL score 2.0?
The CIBIL Score 2.0 is a new, updated version of CIBIL Score which has been designed keeping in mind the current trends and changes in the consumer profiles & credit data. It showcases a risk index score range for those individuals who have a credit history of less than 6 months.
Is 600 a good credit score?
Having a score of 600 is not an ideal situation as banks require a minimum score of 750 to disburse a loan or credit card. However, certain financial institutions might lend you a credit card but with a lesser limit. Loans can be availed but they will come with a higher rate of interest and unfavourable payment patterns.
What does it mean when my Score is NA or NH?
A score of NA or NH implies that you do not have a credit history or you do not have enough of a credit history to be scored, i.e. you are new to the credit system. It also means that you have never applied for a credit card, hence, a CIBIL credit rating is yet to be generated.
Will checking my CIBIL score reduce it?
Inquiry about CIBIL score does not affect your score while inquiry about credit (loans) from multiple banks can affect your CIBIL score. When you check your CIBIL score, it is known as a soft inquiry. When banks and financial institutions check your CIBIL score, it is known as a hard inquiry. Multiple hard inquiries can have a negative impact on your CIBIL score.
What are the effects of Good CIBIL Score on Loan Approval Process
A good CIBIL score plays a crucial role in your application for a loan. Once you have submitted the loan application form at the bank, the first thing a bank checks is the CIBIL credit score and credit information report. If your score is 300 and below, the bank will reject the application at the initial stage. If the CIBIL score is 700 plus, the bank will outright move the application ahead for approval, post the basic KYC. A good CIBIL score is an indicator of good financial health and creditworthiness. Remember, the higher the score, the better are your chances of the loan being reviewed and approved.