8 Top Factors That Affect Your CIBIL Score
Maintaining a good CIBIL score is important because it can significantly impact your ability to get approved for loans, credit cards, and other financial products. A higher score indicates that you are a low-risk borrower and are more likely to repay your debts on time. Conversely, a lower score can make it challenging to obtain credit or result in higher interest rates and fees.
To improve your CIBIL score, it is essential to understand the factors that affect it. Let’s dive deeper into the top 8 factors that can impact your CIBIL score:
1.Payment History:
Your payment history is the most critical factor that affects your CIBIL score, accounting for about 35%. Lenders want to know if you have made timely payments on previous loans, credit cards, and other debts. Late payments can significantly impact your score, while missed payments can be even more detrimental. The more recent the late payment, the more negative the impact on your score.
2.Credit Utilization:
-
Credit utilization is the percentage of your available credit limit that you have used. This factor accounts for about 30% of your CIBIL score. A high credit utilization rate indicates that you may be relying too heavily on credit, which can make you appear risky to lenders. It is advisable to keep your credit utilization below 30% to maintain a good credit score.
3.Credit Mix:
Your credit mix includes the types of credit accounts you have, such as credit cards, personal loans, car loans, home loans, etc. A diverse credit mix can help improve your CIBIL score as it demonstrates your ability to manage various types of credit. However, having too many accounts can be detrimental, as it can make you appear overextended.
4.Credit Inquiries:
Every time you apply for a credit product, the lender requests your credit report, resulting in a hard inquiry. Multiple hard inquiries within a short period can impact your credit score negatively. Hence, try to limit the number of hard inquiries and avoid applying for too many credit products within a short period.
5.Length of Credit History:
The length of your credit history is another crucial factor that affects your CIBIL score. Generally, the longer your credit history, the better it is for your credit score, as it provides a clear picture of your credit behavior over time. A shorter credit history can be detrimental, particularly if you have a limited credit history.
6.Default History:
If you have defaulted on any loans or credit cards in the past, it can severely impact your credit score. The severity of the impact depends on the time since the default, the number of defaults, and the amount involved. A recent default will have a more negative impact on your score than a default that occurred several years ago.
7.Settlement History:
Settlement of any loan or credit card dues for less than the outstanding balance amount can have a negative impact on your CIBIL score. It can indicate to lenders that you were not able to fulfill your financial obligations as agreed. Lenders prefer borrowers who repay the full amount on time.
8.Credit Exposure:
Your credit exposure is the total amount of credit you have outstanding at any given point. It is advisable to keep your credit exposure within manageable limits and avoid overextending yourself financially. A high credit exposure can indicate to lenders that you are overextended and may have difficulty repaying your debts.
In conclusion, maintaining a good CIBIL score is essential for obtaining credit on favorable terms. By understanding the factors that affect your score, you can take steps to maintain or improve it. Make timely payments, keep your credit utilization low, maintain a diverse credit mix, limit the number of hard inquiries, and avoid defaults and settlements.