Your CIBIL score is one of the most important numbers when it comes to finances in your life. The higher the score, the more the chances of getting loans, credit cards, etc. approved. Therefore, it only makes sense to have solid understanding of credit score, so that your loan, and credit card applications are not rejected, and you can take advantage of competitive EMI options whenever you decide to shop, buy a new property, car, or simply want to take out a personal loan to fund that next holiday abroad.
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What is a Cibil Score?
A cibil score is a score that’s built on your borrowing patterns, and repayment behaviors. Whenever you apply for a new loan, or credit card; banks, and financial institutions such as NBFCs, etc. check your score to verify whether you can repay the loan based on your previous borrowing and repayment patterns.
If your cibil score shows bounced EMIs, unclosed loans, or outstanding credit card payments that have been pending since long, your chances of getting an approval are highly unlikely. Therefore, it’s important to maintain a clean score by regularly servicing your loans, and credit card payments by making timely payments to ensure a high credit score for increased chances of approval at lower interests. Keep a track of your cibil score check online to maintain a health credit score.
How is Cibil Score Calculated?
Your cibil score reflects your overall financial discipline. These are some factors that are considered when building your score:
- Credit History: Your credit history includes all the loans, credit cards, and other financial borrowings that you have, and whether you have made timely payments or not.
- Credit Utilization: This determines your need for credit, a higher credit utilization shows more hunger for credit, and thus, financial institutions would be hesitant to grant you a loan. Therefore, it’s best to keep it low.
- Mix of Credit: This includes all your financial borrowings. A healthy mix of credit would include loans, credit cards, etc. and not just a ton of loans or cards alone.
- Duration: The amount of time taken by you to service your loans, and credit card payments.
- Hard Enquiries: Every time you apply for a loan or credit card, and the financial institution looks up your credit history, it’s considered as a hard enquiry impacting your score. A higher amount of hard enquiries will reflect as credit hungry behavior.
Now that you understand the building blocks of a cibil score, and the factors impacting it. Let’s look at a few factors that don’t have an impact on your score!
Self-Checking One’s Cibil Score
Unlike a hard enquiry, when you look up your score online; it’s considered to be a soft enquiry and does not impact your score. Looking up your score from time to time is important so that you are aware of all your current and past borrowings, and whether there are any discrepancies such as closed loans and cards showing up as still active. If that’s the case, it’s important to raise a dispute with the credit score company and rectify the error so that it does not impact your cibil score negatively.
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Using Your debit Card
Your debit card usage has no impact on your credit score history. It’s because unlike a credit card, using a debit card involves your own money and isn’t considered to be a borrowing of any kind. The same doesn’t need to be serviced either by paying back.
A Drop in Salary
Taking a pay cut also doesn’t impact your credit score, as it’s not part of the building blocks that make up your credit score. So, in case you do end up taking a pay cut, your credit score won’t be impacted.
Denial of Credit Application
Although, your credit score won’t be impacted by a denial of loan, or credit card application; the hard enquiry that the banks make to look up your credit score will have some impact on your overall score.
High Account Interest Rates
Having high account interest rates also do not impact your overall score; however, if you miss servicing a loan, or credit card payment then it will negatively impact your score.
Doing your cibil score check online periodically will help you keep track of your score, and help you build a great score by aiding you in closing any gaps negatively impacting it. Apart from loans, and credit cards which help you during financial need; a life insurance policy is equally important to build a solid foundation for a financially secure future. Moreover, it’s an 80 C investment that helps save taxes as well.
So, while you take loans, and keep credit cards to service your immediate financial requirements, don’t forget the importance of taking a life insurance policy, as that will help you build a better financial future for your family in the long run!