Debt And CIBIL Score


Debt and Credit Score (known as CIBIL score in general) are related closely. Debt affects credit score and your credit score affects your eligibility to get fresh debt. Whether you have to apply for fresh debt or already have some existing debt, it is always important to remember that these are long-term decisions and have far reaching impact on the credit score. Not only do existing loans have a bearing on the CIBIL Score even debt enquiries impact it. Below we explore the various aspects of the co-relation between debt and credit score.

Existing Debt and Credit Score:

Whether its credit card dues or various loans they contribute towards building your credit score. The total debt you have, how you treat the payments all have affect in varying degrees.

  • Payments: If EMI payments and credit card installments are paid on time they have a positive impact on your CIBIL report. If the contrary is true then obviously the impact will not be favorable on the credit score. The older your credit trail the better it is.

  • Combination of Debt: Debt is not something that needs to be avoided; after it is debt that gives you a credit score. How much debt (discussed below) how you treat it (discussed in point A) and the combination determine your credit rating. The right mix of secured loans (home and car) and unsecured loans (personal and credit card) affect the credit rating positively. Too much dependence on your credit card; paying only the minimum amount due frequently and utilization of the credit limit to a high extent all are detrimental for your credit history. This aspect needs careful thought. Having only unsecured loans is not beneficial for the credit score.

  • Debt to Income Ratio Is Also Important: This is the ratio of your total monthly debt to your monthly income. The debt to income ratio should not exceed ideally 40%. Though it does not impact credit score directly but keeping this in mind will help you in managing your debt better.

Debt Enquiries:

Not only debt about enquiry about fresh debt also impacts your credit score. When you apply for any loan the concerned bank will run a credit enquiry. Too many enquiries mean that you have either applied for too many loans or that your application has been turned down too many times. This has a 10% weightage when calculating the credit score. In case you are wondering about how to improve your credit score then make sure that you don’t apply for a loan without giving it the required thought and consideration.

How Credit Score Impacts your Eligibility for Fresh Debt?

Though Credit Score is a reflection of your credit history it has a great impact on your eligibility to apply and get fresh debt. Defaulting on payments of past loans or credit card dues and similar other factors lower the credit score. A low credit score is a red flag and can cause your loan application to be rejected right away. While a good credit score not only ensures that you are able to get a fresh loan (it’s after all the basic requirement) but also ensures some other advantages. A high credit score can get you faster processing of loans, some concessions like a better rates and fee waivers (though these are not guaranteed). A low credit score (not beyond the threshold) can prompt the loan provider to offer loans at a higher rate. All loan providers may not give you a loan (as each has a different threshold score) which can cause delay in processing and can also cause you to lose money in the form of application fees.

So with debt and credit score it’s a two way street. Your existing debt and its trail has impact on the credit score and your credit score in turn impacts your eligibility for fresh debt.


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