Your credit history is best described in your credit score. The CIBIL score you uphold says all about your credit repayment and credit management skills. Not only does your credit score highlights your credit worthiness but it also says aloud about how you have been in the past with the available credit. So you should never ignore the declining score or a red flag in the Credit Information Report. Indeed it is very important to decode the score every time you study the report.
Take for example:
Mr Karan Sharma has a high paying Job in IT sector. He has a long history and maintains a credit score of 850 points. He applies for personal loan as he is quite confident about his loan application. But his application is rejected.
Mr Ajay Mathur has credit history of less than 1 year and he has a new job. His credit score is 650. He applies for his first personal loan along with a co-applicant, his father, who his very long positive history and his score is 750. His application is accepted.
Comparing the above cases, Mr Karan Sharma looks better consumer for the bank but the bank rejects his application. Mr Ajay Mathur on the other has lower score but his application is accepted! If rate of credit score is the only basis, then the examples above cannot happen.
To understand the real time situations, it is very important to decode your credit score. You should know about the factors that help increase credit score. You should also know about factors that badly affect the score.
In Case A, the application of Karan Sharma is rejected merely on the basis that the person he became guarantor to, has defaulted his loan. This created a red flag in his CIR.
So whenever you check the report, make sure
you do not see any kind of error or pattern that affects the score. Watch out common
reasons for falling credit score or bad history. Some are discussed below:
1. Too many hard queries by banks for accessing your credit capabilities. This weakens your score.
2. If there is incidence or indication of late repayment(s), it makes you less responsible in the eyes of bank.
3. If you have defaulted ever on the loan repayment or credit card bills. This creates black history and won’t leave the CIBIL report for next 7 years.
4. If any of your co party to loan has defaulted you would be affected too.
5. If your CIR shows you settled the account it is very negative factor for you.
6. If there are errors on your report, you should immediately take steps to raise a dispute and get the correction done
7 Let’s know about each of the major factors
that helps in building your score.
If you are regular on making
payment of your existing loans, EMIs and credit bills, your score is bound to
go up. In fact this is the single most factor to boost the score as much as 35
2. The way you utilize the available credit matters a lot when it comes to calculating your score. You should always try to keep balance on your credit card low. Also make sure you do not use more than 40 % of limit every month. This factor is important to consider as it owes you 30 % of your rating.
W When you are new to credit,
your credit card application or loan
request is sometimes not taken seriously without a co-signor or a guarantor..
Having a decent credit history
makes you less risky prospect for the bank. If you have a long length of good
history it would offer you 15 % of the score.
Next you can add 10 % points
with a right mix of secured and unsecured loans. A recently added credit line
would be a negative factor as it shows your constant credit appetite.
5. A bank always studies how much you owe before granting the new loan. If you already have too much to pay back, the loan application can be rejected. This again holds 10 % of weightage.
Thus, your credit score is not just a three digit number ranging from 300 to 900 points; it is a three faced sword that helps you win the battle ground where banks and credit bureaus keep on adjudging your credit worthiness and capabilities to repay the loan.