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.

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