7 key factors affecting your CIBIL score
Understanding the factors that influence your CIBIL score is crucial for maintaining a healthy credit profile. Here are seven important factors to consider:
This article outlines seven key factors that impact your CIBIL score, including missing EMIs, taking large loans, frequent loan applications, high credit card utilisation, closing credit cards, early loan repayments, and credit card inquiries. Understanding these factors is essential for maintaining a healthy credit profile and ensuring better access to financial opportunities. Here are seven important factors to consider:
Missing an EMI
Missing an Equated Monthly Installment (EMI) on an existing loan has a direct negative impact on your CIBIL score. Consistently missing EMIs or defaulting on loans can severely damage your credit score, making it difficult to obtain future loans. Banks may be reluctant to lend to you, fearing potential losses.
Taking a Large Loan
Taking out a large loan can also affect your CIBIL score. A significant loan indicates a high level of existing debt, which may raise concerns about your ability to repay additional loans. For example, many people see their CIBIL scores drop after taking out a home loan due to the increased debt burden.
Frequent Loan Applications
Applying for loans from multiple banks can negatively impact your CIBIL score. Each loan application prompts a "hard inquiry" into your credit report by the bank, which can lower your score. It's important to note that when you check your own credit score, it results in a "soft inquiry" that doesn't affect your score.
High Credit Card Utilisation
Making large or excessive purchases with a credit card increases your credit utilisation ratio, which can lower your CIBIL score. It's advisable to use less than 30% of your credit card limit to maintain a healthy credit score.
Closing a Credit Card
Closing a credit card can affect your CIBIL score because it reduces your total available credit limit. This can increase your credit utilisation ratio, which negatively impacts your score. It's important to consider the impact on your credit utilisation before closing a credit card account.
Repaying a Loan Early
Repaying a loan before its due date can also impact your CIBIL score. Secured loans, in particular, can cause a temporary dip in your score if repaid early. However, this decline is usually short-term, and your score should recover over time.
Credit Card Inquiries
Every time you apply for a new credit card, a hard inquiry is made on your credit report. Multiple inquiries within a short period can decrease your CIBIL score, as it may indicate financial distress or a high-risk profile.