Credit Information Bureau Limited commonly known as CIBIL is the first India’s Credit Information Company. This company is mainly tasked with the responsibility of collecting and maintaining all the payments records of individuals or organizations that have loans or credit cards. By collecting this information, it becomes easy for the company to come up with a Credit Information Report (CIR). The CIR and Credit Score is used by Banks and Creditors or lenders to evaluate a client before they can finally approve a loan.
By looking at the CIBIL score, a company or lender is able to tell how a person or organization can pay back the borrowed loan. The CIBIL Score is usually given from a scale of 300-900. People who have a credit score which is close to 900 can easily get a loan since they pay their debts on time. If you have a CIBIL score which is close to 300, you cannot be easily trusted with a loan since you have a low credit trust worthiness.
Most banks will closely examine your CIBIL Score before they can finally give you a loan. With a poor CIBIL Score, getting a loan from a bank becomes very difficult unless you make efforts to improve this score. Some of the factors which can end up affecting your CIBIL score include:
- Credit Repayment History
How you repay your previous loan has a huge impact when it comes to improving your CIBIL Score. If you are an individual or company who makes timely loan repayments then you will definitely have a higher CIBIL Score. This in turn increases your chances of getting a bank loan since you can repay it within the stipulated time. However, your CIBIL Score will be very low if you are used to making late loan repayments. Getting a bank loan while having a low CIBIL Score is very hard since it shows that you have difficulties when it comes to fulfilling your obligations
- Utilization of Credit Limits
How you use your credit limit is always taken into consideration when it comes to determining your score. Individuals who utilize a higher credit limit tend to have a low CIBIL score since it portrays an increased burden when it comes to repaying a loan. The chances of getting a bank loan tend to increase if you stick to low credit limits.
- Loan Applications
Some people tend to borrow loans from multiple credit companies in order to maintain their lavish lifestyle. This action will however impact negatively on your CIBIL score and banks will exercise caution before giving you a loan. Once you apply for a bank loan an inquiry on your CIBIL report is made to check how you have repaid previous loans. If there are too many questions, it is believed that you are money hungry hence your CIBIL score will be affected negatively. Ensure that you stick to few lending institutions if you wish to get a bank loan without having to face any difficulty.
- Being a Guarantor on Loans
Banks and other lending institutions will need a guarantor who will pay the loan if you happen to default. Being a guarantor to many friends and relatives will negatively impact your CIBIL Score. When you friend fails to pay the loan on time, you will also be affected as a guarantor since you may be required to pay the debt. Banks will definitely look into this information before they can finally decide to trust you with their money.
- Having many Personal Loans or Credit Cards
A person who has more secured loans such as a home loan is more likely to have a better CIBIL Score as compared to when having unsecured loans. An unsecured loan is usually very expensive and individuals who have this type of loan will have to make higher payments brought about by high interest rates.
- Failure to use your Credit Card
Some people believe that ignoring loans and credit cards will make their life better by simply avoiding bad credit reports. However, this lowers your CIBIL Score since there will be no transactions performed hence making your credit file inactive. Banks will need to have a look at all your previous transaction before they can finally decide to give you a loan. If there are no previous transactions, it becomes difficult for them to determine your credit trustworthiness hence they cannot give you a higher loan limit.
Maintaining a higher CIBIL Score is highly recommended especially if you want to get a loan from your bank. No bank will trust you with their money if you are having a low CIBIL Score since you may end up defaulting on the payment. Make sure that you have a higher CIBIL Score before you can borrow a loan from your bank.