How is my Credit Score Determined?

A credit score plays an important role when you apply for a loan or any line of credit. It’s a three digit number which is used by the banks or lenders to evaluate whether or not they should sanction your loan. It is important to understand what your credit score is before applying for a loan, so that you have an upper hand in loan negotiations i.e. interest rates, processing fees etc.

Imagine you have applied for a loan and your loan gets rejected. You have been told to apply for a loan after you build a good credit score. Many questions will cross your mind like, what is my credit score?  How to check cibil score? How do I improve it? Now this is the tricky part! A credit score is a compilation of a lot of factors associated with your financial things.

Today we will set sight on how a credit score is determined,

Payment History

The most important factor which contributes to your cibil score is your payment history. It accounts for 35% of your score. It is a compilation of factors like : your account information, any default payments, how long the default payments are carried forward, if you have filed for any bankruptcy in the past, etc. If you would like to see a good hike on your cibil score, you should make regular payments to the lenders and make sure you do not have any default payments.

Your balance payments

The credit bureaus have each and every financial detail of yours. They monitor your financial activities on regular basis. Your credit score also gets influenced by the amounts owed by you to the banks or lenders. For example, you have a credit card and its limit is around 1 lakh rupees, imagine you have spent a fortune on the same and when the due date arrived, you converted a lot of transactions into EMIs. This way you have blocked your limit at the same time you owe a lot of money to the bank and the same is reported to the bureaus. It contributes a whopping 30% to your cibil score! It’s better to spend less rather than spending more and facing financial instabilities

Length of Credit

Building a good cibil score is a lengthy process and you need to start somewhere or the other. Once you have applied for a loan or any other financial product like a credit card your transactions start getting recorded with the bureaus. Various accounts have different accountability to your score. For example, if you applied for a home loan, the loan account will be active for at least 15 years. On the other hand a car loan lasts maximum for 5 years. Let’s take a credit card for example. It does not have an account expiry date and you can use the same, until the time you don’t want to close it. It contributes 15% to your credit score. In any case, do not close your credit card account, as that will influence your score under payment history section.

Number of inquiries

We understand there are a lot of financial products available in the market. Some of them so mouthwatering, you would definitely like to get it. Did you happen to know, for each financial product inquiry; your cibil score is being checked? The more inquiry you make with the bureau, the more your chances are to get your cibil score down. As there are a lot of products in the market, only go for the product which is tailored to your need and try making fewer inquiries with the credit bureaus.

Types of Credit Used

There are various credit accounts with which you can be associated with. The cibil score is also determined with the types of credit accounts you hold like, loan accounts, credit cards, etc.

This is just tip of the iceberg as far as credit score goes. It is important to know all these factors and how they contribute to your cibil score. But what’s more important is how you are managing your finances. The more you are financially responsible, the more you have chances of getting a loan without any hassles.

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3 Credit Myths that can destroy your score

Credit history affects various financial aspects of our life. It is crucial to understand what credit score and reports are, how the score is determined and how one can maintain a good score. There is a lot of information available to guide you to towards a perfect credit score. But do not believe everything that you hear. There are many credit myths that are also doing the rounds. One wrong step can lead you in a wrong direction. Do not get misled by such myths that can actually tank your score.

 

Here are some misconceptions that can harm your credit score. Beware of them and get to know the real facts.

 

Myth 1 : Closing credit cards will improve credit score

 

Some people believe that having a number of credit cards has a negative effect on the credit score. They believe that closing some old unused credit cards will help in raising the score. But this isn’t the way credit score works. One of the major factors that determine your score is the credit utilization ratio. It is the amount of credit you use compared to the total available credit limit. For a good CIBIL score you should have high credit limits and you should use not more than 30% of it. Closing credit cards will reduce your total available credit limit and increase your utilization ratio. This will drastically reduce your score. Closing old credit cards also affects the “length of your credit history” factor that impacts  one’s credit score. It reduces the average age of accounts and hence brings down the score. So if you really need to close some cards, close the newer ones. Another option is to close cards with a lower credit limit. Do a CIBIL score check to ensure that the impact of closing the account isn’t too drastic. Also, note that some credit card companies cancel the card if it is inactive for a long period. So charge small expenses to keep the card active.

 

Another misconception regarding closing credit cards is that if you close a card with a bad credit history, the information gets erased from the credit report and your credit score improves. The reality is that you cannot erase  credit card’s history recorded by the bureaus in your credit report just by closing the credit card.

 

Myth 2: Not using credit cards is good for CIBIL score

 

You will see many tips on improving CIBIL score that advises people to pay off all their outstanding balances and stop using their credit cards. They proclaim that going on all cash basis and staying out of debt will help improve your score. But infact such a decision can be destructive for your score. In order to have a good CIBIL score, one needs to show how well one is capable of managing revolving accounts. For this one needs to keep the credit cards active by charging expenses and then paying them off every month. Even if you have a mortgage or any other instalment loan where you are making payments diligently you will not have that perfect score if you do not use credit cards. That’s because the CIBIL score calculation also takes into account the credit mix. A person who displays responsible behaviour in using both types of accounts will have a better score.

 

Myth 3 : You need to carry a balance on the credit card to raise your score

Using the credit card is necessary to build the credit score, but carrying a balance is not. You can work towards a good score if you pay off the entire amount when the bill arrives. By carrying a balance you will have to pay a high interest rate on the outstanding amount. This isn’t required at all to show that you can handle credit responsibly. In fact, paying off the entire bill amount will help in keeping the utilization levels low which is good for your score.

 

Hope this article cleared up the mystery that surrounds the CIBIL score. You will now have a better understanding of how the CIBIL score calculation works, and what you should and should not do to ensure a good score. But what if your score already took a hit because of these myths that you carried in your mind for long? Not to worry! If you are in need of funds you can avail for loans for low CIBIL score offered by many private lenders in the market.

4 Things which look harmless but can hurt your score

A credit score affects one’s financial life in numerous ways. We all know that missing a credit card payment or loan EMIs will damage our credit profile. But there are some things that look harmless but can have a drastic negative impact on our score. Avoid these financial decisions to avoid unexpected surprises.

Co-signing a loan – If your friend or a family member is not able to qualify for a loan, you may not find any harm in co-signing a loan in order to help him. However one needs to understand the financial implications of such a decision. Co-signing a loan has almost the same effect on your credit score as signing a loan oneself. The co-signed loan account will appear on your credit report like any other debt. By co-signing a loan you become legally responsible for paying the loan EMIs if the primary borrower fails to do so. If the primary borrower makes a late payment or misses a payment altogether then it will affect your credit profile as well. Co-signed loans are considered while calculating your debt to income ratio even if they are being paid on time. It reduces the lender’s perspective of how much you can afford to pay back and hence reduces your ability to borrow funds. So if you are planning to apply for a home loan in near future it is better to avoid co-signing for others.  If you do co-sign a loan and take a risk of its implications it is imperative that you check your credit report and score regularly. Keep track of how the co-signed loan is affecting your credit score.

 

Closing old credit card accounts – Sometimes in an effort to clean up credit reports and take control of one’s finances, people close their old credit card accounts that they no longer use. But doing so affects the score negatively. Credit utilization ratio that is a major determiner of CIBIL score is calculated by dividing the total credit card balances by the total available credit limit. Closing old credit cards, reduces your available credit limit and hence increases your utilization levels. This has a major negative impact on the credit score. Length of the credit history also affects one’s score. Old accounts help in raising the average age of your accounts that is good for the credit score. Closing them will reduce the average age of accounts and lower your score.

Paying off an old charge offs- It may be hard to believe but yes, paying off old charge offs can actually reduce your score than increase it. Charge off accounts are those that you haven’t paid and the lender no longer expects any further payments on them. Payments on these accounts will reactivate them and make them appear more current. The collection agency may report it as a new debt than a written off debt. As new accounts have a greater weightage during the credit score calculation, paying written off accounts can bring a drop in your score.  Make sure you do not do any such mistakes before applying for a home loan. Even a few points of score can affect your home loan approval process.

Pushing credit limit- We all know that credit utilization has a major impact on our credit score. That is why it is advised to keep this utilization level below 30%. But what many don’t know is that paying off the balance in full each month may not necessarily mean that you have low utilization levels. If you are in a habit of maxing out your card often you may have high utilization levels that maybe affecting your score negatively. The balance that is used to calculate the credit score is your last statement balance. So if you have charged an amount close to your limit, you will have a high credit utilization ratio. Such over dependence on credit impacts your score negatively.

People who have been diligently paying off their debt obligations can also have a low credit score if they make some of the above mistakes. If you find yourself in such a situation do not despair. You can still apply for loans for bad credit where lenders do not just go by a theoretical evaluation of score. They weigh several other factors to determine your eligibility. So if you are an otherwise responsible borrower, but your credit score took a hit because of the above reasons, you can easily get approved for loans for bad credit.

What is the Lowest Credit Score One Can Get?

Credit scores have caused a lot of anxiety in recent time. Whether you wish to apply for a credit card, take a loan to buy a car or house or refinance your existing loan; a minimum credit score criteria is a major hurdle that needs to be crossed. Lenders base their approval decisions on the score that you have attained. That is why people are consciously making efforts to increase their CIBIL score.

If you haven’t been paying attention to your score you may be wondering what could be the worst case scenario with your credit profile. What is the lowest credit score that you can get? While a credit score range depends on the credit scoring model that a specific bureau uses to calculate the score, in most cases this number lies between 300 and 850. So theoretically your score can go as low as 300, though it happens rarely.

There are several situations that may cause the score to sink to the bottom. Items like bankruptcy, judgements and tax liens on your credit report are some major causes. Apart from these, information regarding overutilization of credit, late payments, missed payments, and accounts that go into collections also find their way to the credit report and cause your score to plummet. A credit history with a combination of these causes will result in a rock bottom score.

So if the credit score is above the 300 mark, does that mean that you can sit back and relax? Not at all! A score between the range of 300-550 isn’t considered a very good score by the lenders. Each lender has his own threshold mark based on the amount of risk that he is willing to take. You will find it hard to qualify for loans with leading financial institutions if your score is below the 600 mark. So if the score fails to satisfy the minimum threshold limit for most lenders, then you will need to resort to bad credit personal loans. These loans are given at a very high rate of interest to cover the high risk financial behaviour of the borrower.

Can you do something to increase your score? The good news is “yes”. A credit score is a snapshot of your past credit behaviour. If you start doing positive things that are good for the score, it will start showing improvement in a few months time. To begin with, you can get a secured credit card. Here you will be required to deposit an amount that serves as your credit limit. Since the issuers do not check the credit score, this card is easy to obtain even with a low score. Use the card for small expenses every month and make timely payments. You can also take a bad credit personal loan and start making timely payments to build positive history. As new positive information gets recorded on the credit report the effect of old negative information starts diminishing.

People with an excellent credit score have a long history of on time payments and low balances on their credit card. Since they are at the least risk of defaulting such people can easily qualify for loans at low rate of interest. Even if your credit profile is in a very bad shape you too can aim to achieve a high score, by practising good credit management. Here are some good financial habits that you should follow.

  1. Analyse your report to see where you stand and identify actions that are bringing your score down.
  2. Pay your bills before the due date
  3. Do not use more than 30% of the available credit limit on your credit cards.
  4. Avoid opening unnecessary credit card accounts
  5. Do not close old credit card accounts
  6. Maintain a good mix of revolving and instalment credit.
  7. Check your credit report for errors and dispute if you find any discrepancies.

When you are on your journey of rebuilding credit make sure no new negative items enter your credit report. As new positive information gets recorded in the report you will be able to put all your past problems behind and hope for a bright future ahead.

What is the Meaning behind Your Credit Score Range?

There is sense of comfort and satisfaction when you know that your credit score falls within the top range. However, what’s the top range exactly? How does it affect your creditworthiness?

A lot of people are unaware of the different types of credit score ranges and how they affect your credit profile.

Taking the CIBIL score range as an example for this post, we will take a look at the different ranges that fall within its entire spectrum.

CIBIL Score Groups

CIBIL scores on a scale of 300 and 900. So, a score of 300 will be the lowest, and 900 the highest. This range is divided into small groups:

750-900

If your score is above 750 then you won’t have any trouble in securing a personal loan, home loan, etc. with a bank of your choice. You can also easily get attractive interest rates with a score in this group.

Most of the people whose scores fall this in this category have three common habits:

  • They always pay their credit card bills and EMIs on time.
  • They have multiple credit cards but their credit utilization is low. So, if their credit card limit is Rs. 5 lakhs, they will use less than Rs. 1 lakh of the same.
  • They don’t close their oldest bank accounts and try not to open new ones

600-749

If your score falls under this range, then you can consider your score “good” but not excellent. What it means is that you are a responsible credit user and know how to manage your money. You try to pay your bills on time but may occasionally be late for a payment or two.

500-600

Any score between 500-600 is a fair score. So, although it’s not a low CIBIL score, it’s not good either. From the perspective of your creditworthiness, you shouldn’t be happy with a score in this group.

Although you can apply for a loan with a “fair” score, it’s not recommended. This is because there is still a good chance of facing rejection. If you apply for a loan multiple times in a short period, then it can actually damage your score further. So, what you should ideally do is work on the score first. Once you have moved from a “fair” score to at least “good”, you can apply for the loan. Not only now you will be able to easily secure it, you can also try to get lower interest rates and more comfortable terms and conditions.

Below 500

A CIBIL score below 500 is considered a low CIBIL score, or rather a “poor” CIBIL score. As you can expect, this means that you will only have problems such as:

  • Obtaining any kind of loan itself can become extremely challenging. Even if you are able to convince a lender to overlook the score, you will have to pay a high interest rate that will make the proposition not worth it.
  • As many finance companies have started screening the job applications on the basis of the credit score as one factor among many, you can have a tough time securing a job too.
  • A poor score means that you will be under high stress and financial insecurity.

0 Credit Score

If your credit report shows “0” credit score, then it’s natural to be worried. However, there is no reason for that because, in most credit reports “0” doesn’t signify the lowest score, but rather than the lack of credit history. In other words- if you have never taken credit in any form, such as credit cards, loans, etc. in your life, it means there is no credit information available, and hence no credit score yet. Once you are under any kind of debt, your lender will submit the information to the credit rating agency and your credit report will be created.

Meaning of Credit Score Range

By matching your credit score with the different groups given above you can easily self-assess your creditworthiness. If your score is poor or even just “fair”, it’s best if you can take it up a notch. This is because your credit report is extremely important, and you should try to keep it in a good condition.

3 Ways Parents Could Accidentally Harm Their Child’s Credit

Credit health is as important as your mental or physical health. However many a times we realize the significance of credit health only when it is hurt. A low credit score hurts your credit worth and makes you ineligible to advance the loans.

Let’s find out some of the common mistakes which hurt the score in the beginning of credit building cycle of an individual. Herein we would focus on 3 ways parents accidentally harm their children’s credit report.

  1. Multiple Student Loans
    The escalating costs of school and college fee is one of the major reasons why student loans are as much a fad as a necessity for young aspirants. The parents who fail to incur adequate research on the matter and avail a high cost loan for the purpose, certainly build a huge financial burden right in the beginning of their child’s credit life cycle.

    Many people mindlessly raise multiple loans for students owing to availability of credit facility at lower rate. With enormous amount of debt it would be a huge responsibility for a student to repay a loan after completing their education. As a parent, it is your duty to calculate total fee amount and try to look for the least expensive way to finance your child’s education.

    You also need to build the healthy habit of saving funds in your child. As a parent, it boils down on you to inculcate good financial habits in your child. Raising too much of loan for their education would not be a smart decision if it results in low CIBIL score.

  2. Share your credit cards
    Excessive spending is another key reason for impending balance on credit cards. Before handing over a credit card to a young mind, it is important to help them understand the importance of not having huge balance at the end of every month.

    Being a parent you can also add the kid as your credit card account holder. It will sometimes help them to improve their CIBIL score. But maintaining good credit behaviour would be a must. As an adult you need to ensure that regular payments are processed on time and there is no balance after the due date. Remember your child is most likely to follow your footsteps. If you are not serious about repaying your bills on time, the child is also not likely to pay attention to deadlines. You would seriously challenge your child’s future with bad credit habits.

  3. Credit education
    If you fail to teach right knowledge about finances and credit to your child it is your failure as a parent. You need to make the young mind understand the important aspects related to money management and ways to improve CIBIL score. The first credit lesson starts from home. You need to make the child understand how credit affects their life. You need to make them understand the importance of credit for their education, job to buying a home or car.

You need to teach them how important it is to monitor their credit score multiple times in a year. It is important to let them know how information in their credit report will impact their credit score.

Educate them about the available resources to obtain a free annual report. You can choose to review it along with them so that they learn the intricacies of maintaining a good score. You need to help your child develop a mindset that it is easier to maintain credit health rather than fixing bad history later on.

Last but not the least, do not forget to talk about identity theft threats. For online it is one of the fastest-growing crimes. They should know that sensitive information related to account should not be shared with anyone outside.

Is a ‘Perfect’ Credit Score Even Possible? Or It’s a Myth?

The credit score is globally accepted as a signpost to a person’s credit worth. Banks and financial institutions consider this three digit number as a hallmark of your repayment capability. They gauge the risk factor associated with each loan application considering the credit score of the applicant.

In India CIBIL score is primarily considered as the benchmark of a person’s credit score. Credit Information Bureau of India and TransUnion CIBIL Limited are some of the other names of CIBIL which is the premium credit agency of India. It is country’s first credit bureau which modeled a systematic credit scoring system for banks and financial systems.

The CIBIL score is calculated between 300 to 900 points, wherein 900 is the perfect score while 300 is the lowest score. The more closer an individual or a business is to 900 CIBIL score, the better is their credit worth in the eyes of a lender. According to CIBIL 80 % of people with 750 or above points are granted loans by banks.

It is worthwhile to consider here if a good score a guarantee to loan approval? And for that matter, is it practical to get a perfect credit score such as 900 CIBIL points? Is it even possible to attain the perfection or it is just a myth?

It is not possible to state an absolute calculation on what causes low CIBIL score and why. So, let’s find out what compounds a CIBIL score to reach to point of understanding for this query.

Credit score calculations factor in too many aspects which are not absolute in nature and may vary from person to person. Every individual and business vary in terms of their credit worth and so does the impact of their financial moves.

However we can inscribe 5 common factors that affect credit score calculation globally:

  1. Repayments
    To maintain a good credit score, timely repayment of loans and credit bills is a must criterion. Indeed it is one of the key factors that define the stature of your score. According to CIBIL reports discipline in credit repayment can boost your score by 30 to 35 percent. Thus diligent repayment could be your first step towards the perfect CIBIL score.
  2. Credit utilization ratio
    As important it is to repay on time as is to keep a check on your credit accounts. You should always ensure that you do not overuse the credit limit offered to you. Those who exhaust their limit every month are less likely to have a good score. Lenders assume that you are short of cash and your financial situation might be not be as sound for a perfect score. So, using more than your credit limit has a negative impact on your credit report. Indeed it is recommended to limit your credit use far below 30% of total approved limit.
  3. Query
    Always ensure that you do not make multiple queries in a small period of time. Every time you make a query for loan or a credit card, it is marked on your credit report. Frequent queries
    on your report signify credit hungry nature and thus make you financially less strong.

 

  1. Credit mix
    Every time you borrow or use a credit product, the lender undertakes a risk. They charge interest rate to cover up this risk. When you borrow against a property or some other collateral the risk is substantially reduced and thus you are offered a better rate of interest. With this said, I hope it is clear why you should maintain a right credit mix of secured and unsecured loans. Too many unsecured loans restrict your score.
  2. Length of credit

The length of credit history also affects the score. The older is the good history the better effect it will have on your credit report. Thus those who have older history are rated better than new borrowers. This is also why when you close an old credit card with good history, it affects your score negatively.

 

Knowing these factors you can ensure a good score during all the seasons of your life. If however you target the perfection, you need to frequently check your credit report and monitor every activity that hurts your score.

3 Strategies to Help You Save Money Now and in the Future

When you are young and just started out in the world, it’s easy to think that money is nothing and spend what you earn. Have you ever given a thought that saving money will not only help you build a secure future but also will add supplement when you make huge plans for life. In this decade we are living in, we are surrounded by a lot of unwanted things and the temptation to have them all. What we do not understand is we are spending a fortune on luxury without giving a thought on the future. These practices lead to bankruptcy and result to taking a loan and if you do not pay your EMIs on time your credit score will go for a toss. Do you know your cibil score calculation? And if you don’t, then steps to enhance your credit score?

How does the temptation to buy or spend on luxury things rises? In every group there will be friend who buys the latest IPhone every year and flaunts it whenever you meet. It gives you a thought, should I buy the same phone to live up to my friend’s standards and end up buying a similar phone. What you do not realize is that, just for sake of status you spent a fortune on a phone which will prove worthless after a year when a new model releases and then you will be going after that phone as well.

Just to avoid such perceptive buying and spending, today we will be sharing you three best strategies to lower your expenses and save for a better future,

Set your priorities straight;

Everyone has their own priorities; the priorities can be of two types and can be categorized into needs and wants. Try understanding your needs over wants, for example buying a car for your commute is a need but buying a Mercedes or a BMW for your commute is a want. You can always cut down on a lot of your wants and start contributing for what your needs are. Make a priority list of things you need with the age when you expect to achieve it. We can set some priority points which are common in everyone’s life and you can start from this,

For emergencies you do not know what can happen at any time, always be prepared for the worse. It can be a broken mobile screen; you lost your job in some company and need at least three months of financial backup, any medical emergencies.

For Education a good education plays a vital role in everyone’s life and where does good education come from? It comes from great educational institution. Instead of opting for an education loan try saving money for the same.

For home buying this is a big step in your life, buying a dream house is no joke, there is a lot of planning and savings involved in the same. If you start saving money from today who knows you may land up in your dream house without hassles of taking home loan.

For retirement after a long innings in your money making life, you will be expecting a comfortable life after retirement so you can save for your retirement and spend the rest of your life in financial peace.

Always plan to save

 We all know nothing is impossible without proper planning; the same goes with financial planning where you are supposed to make plans on savings and track them on a regular basis whether  you are adhering the same.

Build a budget for saving every month is not the same, you may encounter emergencies and you may have to spend your savings but building a budget will not harm you. Build a budget you would like to save from your earnings and stick to it. One tip: try saving in a bank account with no debit card and internet banking so that you do not tempt to use that money for luxury.

Track your expenses after you make a budget track your expenses, where you are spending, how much you are spending. If needed cut some luxury of availing public transport for short distances, go by walk.

Make secured investment these days you can make secured investment like fixed deposits, recurring deposits and so which will guarantee you good returns in short tenure.

Stick to your plan

 It’s just like a new year’s resolution where you promise yourself to get fit this year and workout a good two weeks and after that stop going to the gym and your resolution goes for a toss. If you have made a financial plan stick to it no matter what.

Something is better than nothing is the quote we should stick to, and start saving from today. You do not know what life has for us; it can be sweet pleasures or bitter pain. For such bitter pain be prepared and start saving from today.

Bank Pulling Your Credit Report? Wait, Don’t Freak Out

Unless you seek to borrow funds from your friends or relatives or from a lender who is not a part of the mainstream organized financial structure you cannot circumvent an inquiry into your credit score. Thus whenever an applicant applies for a loan or a new credit card the prospective lender will seek the applicants credit report to assess their credit health and then based on that they will decide whether to accept the application or not. Credit check is not only a part of the screening process used by lenders when assessing potential candidates but it is the first step in that process. So the borrower or an applicant can do nothing about a financial institution seeking their CIR when applying for credit. However is this a cause of worry?

Impact of a Bank Pulling Your Credit Report:

Banks or any other lender seeking the applicant’s report is part of the screening process and is beneficial to both the lender and borrower. Lenders can eliminate applicants who pose a threat of default as may be revealed by their credit score and for the borrower it means a more objective process of screening which is not based on subjective factors. So what happens when a bank pulls the CIR of an individual?

A credit report consists of various sections and each section has information related to that aspect respectively. There is a personal information section which will have details about name, contact details and so on for the person; the accounts details section will have details about home loans, personal loans, auto loans, all credit cards that a person may have and so on while the inquiries section will have details about the inquiries that have been made about the credit score of the individual. Thus which financial institution sought the report of the applicant and when will be recorded in this section.  There are five aspects that are taken into account when the credit score is calculated. Inquiries information is one of the five factors and each inquiry can cause the credit score to fall.

So is there a Cause of Worry?

Despite hard inquiries causing a dip in the credit score there is no reason to worry about it when a bank seeks the CIR. This is due to a couple of reasons; the first reason being that each hard enquiry will cause a dip of only five points or so in the score. The actual impact will depend on some other aspects also; if there are few accounts and the credit history is not very deep then the impact of each hard inquiry will be slightly higher. When there are a larger number of accounts and the credit history is deeper then each inquiry will have a comparatively lesser impact on credit score.

Though hard inquiries are taken into account when calculating the score but their weightage is only 10% thus their actual impact is very less when compared to other aspects like repayment history and credit utilization ratio. Thus if one has been responsible in paying their dues on time in the past and has also been a responsible credit card user their overall score is expected to be good. If there are missed payments, high credit utilization ratio and too many unsecured loans in the credit report then there is not much that can be done. In such a scenario a bank pulling your report will just worsen the score slightly.

So unless one makes reckless applications for loans there should not be a cause of worry.  When calculating the score only inquiries that were made in the past two years are considered which should reduce the stress level for any applicant.

When applying for a loan the applicant should ensure that they check the eligibility criteria of the lender so that they are sure of their application being accepted. Also stay away from applying for a loan or fresh credit unless absolutely necessary, this will save you from unnecessary hard inquiries and any impact on the credit rating.

Four Steps to a Healthier Credit Report

Credit scores are important as they are not only an indication of financial well being and discipline but it also a crucial factor in getting a loan application accepted or rejected. Thus it makes sense for you to be aware of what contributes to making a good or bad credit rating so that you can aim to have a healthy credit report. Here we look at a few aspects that contribute to a healthier credit score.

How to Get a Healthier Credit Score:

Five factors impact CIBIL score calculation and taking care of these factors will ensure that you have a good rating that will allow you to have access to credit if you so require.

  1. Ensure Timely Payments: This is the most crucial factor in the credit score calculation. Thus paying on time is the best way to a healthier score. So whether it’s the EMIs or credit card bills remember to always them before the due date or by the due date. This simple rule will go a long way in maintaining a good score. If you have not done this in the past it is never too late to remedy your ways. While paying on time going forward will not immediately improve the score but it will have a positive impact over a long period of time and the negative impact of late payments each month will reduce. Plus it’s a great way to get you off the loan defaulter list and better your chances of getting a loan approved.
  2. Use the Credit Cards Wisely: Credit cards come with a sanctioned credit limit; this is the maximum amount that the user can spend without paying the dues. Thus if your card has a sanctioned limit of Rs. 100,000 then this means you have access to credit up to Rs. 100,000 per billing cycle. However this does not meant that you actually need to spend an amount equal to the sanctioned limit. Actually it is good idea to keep the spending below or equal to 30%-35% of the sanctioned limit on a regular basis. A low credit utilization ration (usage/sanctioned limit) has a positive impact on the credit score and after the credit repayment history it is the most important factor when calculating the score.
  3. Eliminate Old Dues: If one is looking at getting a healthier credit report card then it is mostly a long term process. Improving the rating takes time but eliminating old dues is something that can have an immediate impact if done correctly. If you have pending dues that are reflected in your CIR then take care of them in the right way to see an improvement in the score. When you repay old dues remember to pay the entire amount and in case you do negotiate with the lender then do ensure that the lender does not report it is “settled”. A settled debt is never a good sign and would not improve the score and may have an opposite impact. Having said that paying an old debt does not mean that the delays and missed payment are removed from payment history but the debt will not show as an overdue amount in future reports which is bound to have a positive impact.
  4. Avoid Credit Enquiries: Needless to say one must apply for a loan only when one requires it! Each time one applies for a loan the prospective lender seeks the credit report of the applicant. This is known as a hard enquiry; enquiries are one of the five factors that influence the CIBIL score calculation. Even when one needs a loan and applies for it then make sure you make a thorough check about the lender’s eligibility criterion and the required documentation. This will ensure that there are no unnecessary credit enquiries and you apply to lenders only where you have a fair chance of getting the loan application accepted.

Staying credit healthy should not be something that one does once in a while and them forgets about it. Inculcating healthy credit habits and being financially disciplined ensures that one remains credit healthy throughout! Just like are financial and physical health we need to take care of our credit health too.