A credit score is a crucial factor that different financial institutions take into consideration while evaluating a loan application. Hence, it is a must to calculate a CIBIL score using a free CIBIL score calculator before an individual applies for a home loan. If the CIBIL score is low, it becomes imperative to know the reasons so that individuals can easily improve it to meet the eligibility criteria.
10 Reasons for Change in Credit Score
Below are the reasons that can significantly change your credit score:
1. Duration of credit history
The length of credit history is an important factor that affects an individual’s credit score. As and when an individual makes a payment using their credit card, the credit score keeps improving. Ideally, a good CIBIL score range extends from 600 to 900. Also, if there is any negative mark in the credit report, it vanishes with passing time.
2. Debt repayment history
Timely debt repayment prominently affects the credit score of an individual. Loan seekers repaying their debt within the loan tenure and paying EMIs timely have a better credit score compared to the ones who do not. This will, in turn, allow them to receive larger amounts of credit at more attractive interest rates.
3. Differences in credit bureaus
There are four credit bureaus, namely, Equifax, TransUnion, Experian, and CRIF Highmark, which have different parameters based on which they provide a credit score. So there can be a variation in the credit scores awarded by each of these institutions. Borrowers should know which score their preferred financial institution follows before applying for a loan.
4. Industry-specific credit score
There are several financial institutions that generate credit reports based on certain parameters that are quite different from the nationwide CRAs. For instance, if an individual is applying for a home loan, their previous home loan records are only taken into account.
5. Debt-to-credit ratio
Several times individuals tend to exceed their credit limit for a month. To a certain extent, this does not affect the credit score. However, if the expenses exceed about 30% of the limit for almost every month, it can adversely affect the credit score. So to maintain a good credit score, it is a must to limit credit card usage. Individuals can also increase their credit card limit to keep themselves safe from these situations.
6. Extensive enquiries
If an individual faces extensive queries related to their credit history, it can reduce their scores significantly. This often happens when an individual is trying to borrow very often, but financial institutions are rejecting their loan application repeatedly. So it is advisable to refrain from frequent loan applications. At the same time, borrowers must go through the eligibility criteria to stay safe from loan rejection.
7. Adverse public records
Situations such as bankruptcy, court judgements or tax liens can adversely affect an individual’s CIBIL score. Hence, if a borrower encounters such a situation, the best step is to settle those before they become public. This can prevent a drop in CIBIL score.
8. Changes in debt report
As soon as an individual start paying off their EMIs, their debt reduces. This gradually increases the CIBIL score of an individual. Once the loan is completely paid off within the given time, the CIBIL score restores back to what it was before taking the loan, or at times it can even increase, proving the credibility of the borrower.
9. Opting for new credit cards
There are individuals who opt for multiple credit cards to fulfil their extensive monetary needs. However, this, too, can cause a significant drop in the CIBIL score. It is considered that an individual with a multiple number of credit cards does not have control over their spending. So it is best to avoid such practices to prevent a prominent reduction in their CIBIL score.
10. Exceeding credit limit frequently
If an individual keeps exceeding their credit limit, it negatively affects the credit score. This is because they appear unable to manage their finances carefully. Thus, it is important to keep credit card expenses in check. Also, borrowers can apply for a higher credit card limit to prevent exceeding the limit.
Apart from calculating CIBIL scores using a free CIBIL score calculator, individuals must evaluate their credit report every month. This would help them identify their mistakes and help them improve them by applying new strategies. Additionally, in case of any discrepancies, they can notice and resolve them at the earliest to prevent severe consequences in the future.
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Disclaimer: This content is part of a marketing initiative. No TNIE Group journalist is involved in the creation of this content.