Let’s say you want to take a loan, and you go to the bank and apply for one. At this point, the bank would check your creditworthiness, to determine whether you are eligible for a loan, what interest rate to give you, and what should be your credit limit. Banks and other lending institutes use credit scores to measure this. Most banks in India use Cibil as their credit-scoring bureau.
Depending on the credit score from Cibil, which ranges from 300 to 900, you will be given your borrowing options by the bank. To get a bigger loan at a lower interest rate, you will need to get a higher Cibil credit score. Anything above 700 is usually considered a good credit score. Here are four factors that Cibil takes into account when formulating your credit score.
Your payment history is all that Cibil has to work with. So, if they had a quick look at your records and found that you have missed payment dates multiple times in the last few years, then you will get a lower credit score from Cibil. On the other hand, if you have always made your payments on time, then you will get a higher credit score.
Utilization of Credit Limits
When you take out a loan, you are most likely to pay it through your credit card, as this way, you ensure that your payments go out on time. The more you use up your credit card limit, the higher the credit card limit will become, only if you are repaying your credit card debts on time though. Having a higher credit card limit will positively contribute towards your Cibil credit score. The logic behind this is that, since you have been paying off larger and larger credit card debts on time, banks should consider the credit risk to be low.
Secured vs. Unsecured Loans
Whom would you trust more? A person who has always agreed to give a way his assets if he is unable to repay the loan on time or a person who has always tried to get loans without tying any of his assets to the loan? Walking in to a bank, asking them for a loan, and agreeing for them to take your car or house if you fail to pay them back is admirable and shows confidence. Cibil values such confidence, and if you have confidently taken out loans in the past as ‘secured loans’, then you will be scored highly.
How ‘Credit Hungry’ You Are
If you do choose to lodge new loan applications, while you already have an outstanding debt with other ongoing loans, banks will be cautious of sanctioning new loans to you. This is kind of behavior is called ‘credit hungry’ behavior, and indicates that your debt burden has increased and you are unable to handle it in your current situation.