CIBIL Score: How It Tracks Your Credit History & Tips to Improve Your Record - richajain32/financial GitHub Wiki

Nowadays, almost everyone has at least one credit card. It has so many financial facilities, like additional offers and excellent purchase discounts. Also, loans have become quite common in today’s financial ecosystem. Both government-based and private organizations have included loan services in their offerings. Home loans, car loans, personal loans, and the list goes on.

If you are using a credit card or are repaying a loan, credit companies like CIBIL and Experian will give you a score. The score given by CIBIL is known as the CIBIL score. It’s more of a mere number. Instead, it shows your ability to pay off debts. Most financial platforms like the Bajaj Markets app access the CIBIL score to judge your loan eligibility. So, it’s important to know how your credit history impacts the CIBIL. Also, knowing the ways to improve poor CIBIL scores will come in handy in the future.

How does CIBIL score track the credit history of individuals?

When you open UPI apps or the Bajaj Markets app, you will find an option saying “Calculate your CIBIL”. Selecting it will automatically show a number, somewhere between 300 and 900. This is your CIBIL score, which summarizes your credit history. Below we have explained how it helps banks and other financial institutions track the credit activities of individuals.

Payment history

CIBIL calculation considers the past payments made towards bills and EMIs. For instance, all credit card credit card payments, whether they are made on time are used to calculate the score. Similarly, EMI payment records will be scanned. If you have missed payments or delayed EMIs, the CIBIL will be impacted gravely.

Credit Utilization Ratio

This is the ratio of how much you spend to how much you are earning monthly. It is calculated as a percentage of your total outstanding debt to the credit limit you have. For instance, let’s say you have a total unpaid debt of INR 3,500. However, your credit limit is marked as INR 15,000. Hence, your credit utilization ratio will be 23%. Most financial organizations check the ratio to determine your ability to pay off the debts. The lower the ratio, the higher will be your credit score. The marginal credit utilization ratio in India is 35%. Anything beyond this will be considered poor for you.

Multiple loan and credit applications

Having too many loans under your name can have an impact on your credit score. Your outstanding debt will automatically increase with more loans. This will increase the credit utilization ratio significantly. Lenders may have an impression that your spending is mostly dependent on credit rather than your earnings. So, your CIBIL will automatically decrease.

What are the challenges of having a poor CIBIL?

  • If you want to take out a loan, the interest rates charged will be higher. Most lenders propose a higher interest rate than the standards to offset the risks.
  • Financial organizations can reject your loan application if you have a poor CIBIL score. For instance, a credit score of 500 is not eligible for loans and credits.
  • You may not be able to take loans with longer repayment tenure. That’s because lenders won’t have the assurance that you can pay off the debts over the years.
  • If you take any insurance coverage, the premiums may be higher due to poor CIBIL score.

So, you should always check CIBIL score online to know your credit performance.

How to improve the CIBIL score?

If the credit score is low, you need to improve it at the earliest. Otherwise, it may impact your financial journey. Below are some of the ways to increase CIBIL easily.

  • You should use your credit cards responsibly. Pay off the outstanding debt on time without any delays. Also, use them consistently to demonstrate your reliability.
  • Do not take multiple loans under your name. If your outstanding debt is high as a primary borrower, your CIBIL will decrease further. So, taking out loans should be aligned with your repayment ability.
  • You should frequently check online CIBIL score. It will help you track your credit history with time. Also, you will know if your credit utilization ratio is under the margin of 35% or not.
  • If you have loans, pay the EMIs on time. Delayed and missed payments will lower your CIBIL further.
  • Monitor your credit card reports thoroughly. It will help you detect any misuse or unauthorized transactions. If found any, report to your bank immediately.

Conclusion

Maintaining a higher CIBIL is crucial to staying financially reliable and responsible. You can check your score online on the Bajaj Markets app anytime. If it is below 700, you can try the above-mentioned tips to increase the score.