Maintaining a strong financial history requires having a high CIBIL score. This three-digit figure, which ranges from 300 to 900, represents a person's creditworthiness. Good creditworthiness is shown by a high score, whereas bad creditworthiness is indicated by a low score. These are the top 5 factors affecting your CIBIL score, and knowing them will help you know what you need to do to keep your score high.
5 Factors Affecting Your CIBIL Score
Payment History
Length of Credit History
Credit Utilization Ratio
Credit Inquiries
Credit Mix
1. Payment History
Your payment history is one of the most important variables that determine your CIBIL score. It displays how responsibly you have managed your prior debts from credit cards and loans. Your credit score can be significantly impacted by missed payments and loan defaults. Even one late payment can lower your score, and a history of late payments can have a significant negative effect on your credit score. If the default is a recent one, then your score will be affected more. Therefore, it's crucial to make sure that you pay all of your debts back on schedule.
2. Length of Credit History
The length of your credit history is another aspect that influences your CIBIL score. A lengthy and reliable credit history demonstrates sound credit management. However, having a short credit history makes it challenging for creditors to evaluate your creditworthiness. It's therefore advised to maintain credit for an extended period of time in order to raise your credit score.
3. Credit Utilization Ratio
The percentage of a person's credit limit that is being used is known as the credit utilization ratio. Utilizing a large portion of your credit limit suggests that you are overly dependent on credit, which lowers your CIBIL score. The credit utilization percentage should ideally be lower than 30% of your credit limit. Therefore, it's advised to only use what is necessary rather than going over your credit limit.
4. Credit Inquiries
A credit inquiry occurs when a lender pulls your credit report to determine your creditworthiness. Therefore, the lender's inquiry is noted in your credit history each time you apply for a loan or credit card. Multiple queries in a short period of time are a sign of credit hunger and lower your CIBIL score. It implies that you struggle to manage your money and rely too heavily on credit.
5. Credit Mix
The mix of credit that a person possesses includes personal loans, mortgages, credit cards, etc. A healthy mix of credit demonstrates the ability to effectively manage various forms of credit. Your CIBIL score is thought to benefit from a healthy credit mix because it shows that you are trustworthy in handling various forms of credit.
Summing Up
It’s essential to keep your CIBIL score high in the current economy. By keeping these items in mind, you can increase and maintain your score. It's crucial to make all of your payments on time, maintain a low credit utilization rate, keep credit accounts active for a longer period of time, diversify your sources of credit, and refrain from making unnecessary credit inquiries. You can keep a strong financial history by following these things.
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