Understand the credit score
TransUnion Credit Information Bureau (India) Limited (CIBIL) is the main agency that calculates your credit score. It uses advanced analytical methods to assign a score from 300 to 900. A credit score close to 900 makes it easy to get quick loans at a competitive interest rate. Although each financial institution has a different credit score threshold, most lenders are willing to lend money if your score is above 750. However, a high credit score does not guarantee approval of your online loan application because lenders consider several other factors when approving your loan
1. Credit history
Credit history has a 30% weight-age in the calculation of your score. Banks and non-bank finance companies (NBFCs) provide your personal and credit-related data to the credit bureau. The bureau then collects the information on the report provided to them by financial institutions. CIBIL maintains monthly records of the last three years of your invoices and equalized monthly installments (EMI).
The credit report includes the status of all your accounts indicating whether they are canceled, settled or still pending. In case there are delays, record the number of days elapsed since the due date. Therefore, if you have missed or delayed a payment, it negatively affects your credit score.
2. Combination of credits
The CIBIL score depends on the components of your loans, which means the number of secured vs. unsecured installments. The combination of credits is weighted 25% in your overall score.
Any delay or default, regardless of whether it is a secured or unsecured instant loan, has an adverse impact on your score. However, if you have a higher unsecured loan weight, it lowers your score even if you’ve made payments on time. On the other hand, timely repayment of secured loans positively affects your credit score.
3. Use of credit
Your credit utilization ratio is the amount of money you’ve borrowed versus the amount you may actually be eligible to borrow. Credit utilization also weighs 25% in the total credit score.
Using credit requires your credit limit and the amount you’ve actually borrowed. The credit bureau negatively perceives a higher utilization during a period because it reflects that its load increases throughout the duration.
4.Others
The number of loans you have applied for in the recent past has a 20% weight in your total credit score. This is reflected in the Query part of the report. If you have made several inquiries, it is viewed negatively by the credit bureau.
Your credit report not only affects your ability to take advantage of easy loans, it also affects their terms and conditions. If you have a higher score, there is a higher chance of approval with favorable terms. It is recommended that you check your score before applying for a loan offline or online to reduce the chances of rejection due to a lower score.
