CIBIL Score: How CIBIL Score is calculated, if you know this then the loan will never get stuck...

If you have ever taken a loan or credit card, then you must have also come to know about credit score. Whether you are going to take any loan or credit card, this score is very important.

It is also known as CIBIL score. Good credit score gives leverage in case of loan. Be it personal loan or credit card or home loan, everywhere the bank or finance company verifies CIBIL or credit score. In such a situation, it is important to know what credit score is and how it is calculated…

This is how the score is prepared-
Credit bureaus like TransUnion CIBIL collect details of your loan and credit card transactions from banks and other financial institutions. Based on this information, credit report and CIBIL score are prepared. When you apply for a loan, banks ask for your credit report and score from the credit bureau. Through this the bank assesses whether you can repay the loan or not. In simple words, this tells the bank about your financial credibility.

Understand credit score like this-
Credit score ranges between 300 to 900. The closer your credit score is to 900, the higher your chances of loan approval. Generally a credit score above 750 is considered good. A score between 550 to 750 is considered good i.e. average, while a score below 550 is considered bad i.e. low credit score. If the credit score is bad, banks may refuse to give loan or charge higher interest rates. Apart from credit score, there are many other factors which come into play in the matter of loan.

These factors have an impact-
The calculation of CIBIL score depends on many factors, like what is your repayment history? That means whether you make EMI or credit card payment on time or not. The second is credit utilization. Credit utilization means how much you use the credit card limit. The more you use your credit card, the higher your credit utilization ratio (CUR). This shows that you have no control over your credit-hungry behavior and spending. Excessive credit utilization affects the credit score. If you make too many inquiries or apply for a loan, your CIBIL score will be affected.

Improve bad credit score like this-
You can improve your CIBIL score by maintaining a good credit history. For this you will have to follow some steps. Make loan EMI or credit card payments on time. Delay in payment has a negative impact. Use credit limit carefully. Keep credit utilization less than 30 percent of the credit limit. Avoid applying for multiple loans repeatedly or at the same time. Apply only when necessary.

Keep these things in mind also-
Maintain a mix between secured loans like home loan and auto loan and unsecured loans like personal loan or credit card. Having more unsecured loans is considered negative. If you are a guarantor, co-borrower or joint account holder in a loan account, then keep an eye on it. If your partner misses any payment then you are equally responsible. His negligence can affect your ability to take loan.

This thing has no effect-
Check CIBIL score and credit report from time to time. Frequent checking of CIBIL score will not affect your credit score. However, if the bank or financial institution checks your credit report, it is considered a 'hard enquiry'. Too many hard inquiries can affect your credit score.

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