What’s a bad score? What can negatively impact your score? These are a few of the crucial questions to ponder about if you are looking for a good loan deal in the future. Here you will learn about the poor practices that can impact your score and the crucial tips for ameliorating your score.
Holding an excellent score opens the window to high-end credit cards, better deals and offers on loans and an affordable rate of interest. In contrast, with a poor credit score, your credit card and loan application are likely to get turned down. Have a look at some of the poor credit practices that can result in poor credit scores below. However, before this ensure to understand what CIBIL score is and why conducting regular CIBIL score check is important.
What is the CIBIL score?
CIBIL (credit information bureau limited) is one of the most well-known credit information companies licensed by the RBI (Reserve Bank of India). There are 3 other companies even licensed by the Reserve Bank of India to perform as credit information companies. They are Equifax, Experian and CRIF Highmark. But the most popular score in India, which is highly preferred by most lenders is the CIBIL score. Whether it is a public sector bank like the Bank of India, a private sector bank like Axis bank or a digital company like IIFL, CIBIL score is a must parameter for all of them.
CIBIL Limited maintains the credit files of nearly 600 million people and 32 million companies or organisations. CIBIL India is part of TransUnion, which is an American group. Owing to this reason, the CIBIL score at times in India is also addressed by the term CIBIL TransUnion score. CIBIL score is a 3-digit numerical summary showing your credit history, report and rating and ranges anywhere between 300 and 900. Note that the nearer you are to 900, the higher your chances of availing a loan or credit card application are approved.
What does credit report and history infer from CIBIL?
When you look to avail a loan, you must ensure to ask yourself the question what’s your CIBIL score? And will you be credible? Your financial institution will thoroughly check your credibility by going through your past credit history and accordingly prepare a credit report.
A credit report is nothing but a record of your debt repayments. A credit report contains a record of your past credit record with several sources involving banks, collection agencies, credit card companies and government bodies. Your credit score basically is the outcome of a mathematical algorithm applied to the credit info to predict how credible you are as a credit applicant.
Also Check: IIFL CIBIL Score
Why does CIBIL score matter?
CIBIL score plays an essential role in the process of the loan application. When you approach a financial institution or bank for a loan, the lender initially checks your CIBIL score by fetching your report. In case your score is low, then the financial institution might not consider taking your application further. If your CIBIL score is on the high end, then the lender may investigate your application and factor in other important details to decide if you are credible as an applicant.
CIBIL score works perfectly in creating your first impression in front of the lender. So, the higher your credit score you hold, the better your chances of your loan being evaluated and approved. The decision to lend is thoroughly based on the bank and the CIBIL bureau does not determine your approval for a loan or credit card. Typically, a credit score of 750 and above is looked upon as excellent by most lenders.
What is a poor credit score?
Poor infers a relative term and thus, it is better to use the phrase “low score”. Your score ranges anywhere between 300 and 900, wherein 750 and above is considered a good score, meaning the nearer your score is towards 900, the better your chances to get approval for your credit card or loan application submission.
What results in a low credit score?
Read the table below. Here, you will understand the difference between good credit and poor credit practices that tend to impact your credit score –
|Good credit practice||Poor credit practice|
|Timely repayment of loan EMIs and credit card dues||Missed or delayed repayments|
|Low credit utilisation ratio of within 30 per cent of the overall credit card limit||A lot of credit usage of generally over 30 per cent of the overall credit card limit|
|Reviewing your credit report on a periodic basis||Minimal checking or credit report is done by you|
|Repaying your debt in full and on time||Shifting debt payments or placing an application for a personal loan or credit card to pay for the existing credit card dues.|
|Opening a credit account just when required||Opening several credit accounts just to form your credit history, however failing to repay your dues in full and on time.|
How does a low credit score affect you?
A low credit score might impact you in various ways as stated below –
∙ Many lenders that offer loans at a relatively lower rate of interest might not even factor in your loan application if your credit score is less than 750. This is because, such lenders assume if they provide you with the loan, then you would miss repaying on time and in full. In place of approaching a reputable lender, you may have to approach a lender that may charge a higher interest rate because of your low credit score. Besides charging a higher interest rate, such lenders may even charge a higher processing fee.
∙ You might not be able to get a premium credit card deal and offer. If your score is on the higher end, you are usually provided with an introductory benefit on the premium card. You might even receive a higher credit card limit on your card. A poor score might make you miss out on such amazing deals.