Cibil Score Is Not Affected By These Factors
A credit score is a numerical value used to determine the creditworthiness of an individual. This value is revealed through credit reports generated by credit bureaus.
A credit score of 700 or above (on a scale of 300 to 850) is usually considered to be a good score. When you apply for a loan, a good credit score enhances your loan approval. Also, it helps you save more on interest rates.
According to TransUnion CIBIL, a leading credit bureau of India, 79 percent of loans are approved for individuals holding a score higher than 750. There are various factors that influence a credit score. Major being – payment history, outstanding amounts, length of credit history, type of credits (secured v/s unsecured) and number of inquiries. More inquiries represent credit greedy behaviour and can have a negative impact on score.
Your CIBIL score is essential when it comes to borrowing money. It can mean the difference between getting approved or denied, and can unlock a lot of benefits for you…
It can also give you “elite” privileges. For example, things like access to valuable credit card reward programs and even lower interest rates.
Rather than taking your CIBIL score for granted, you should know where you stand, and work to improve it.
Dare I ask if you know your CIBIL score? Would you know what hurts it? What makes it stronger?
I get it – CIBIL scores are somewhat vague. It’s not a sexy topic, and it isn’t easy to wrap your head around a number that they calculate in a mystery box.
Today’s article will answer the most popular questions related to CIBIL scores. I’ll also dispel some popular factors that don’t affect your CIBIL score!
Let’s check out factors that do not affect your CIBIL score:
Perhaps the greatest misconception of them all is that checking your credit report will negatively impact your CIBIL score. There are actually two types of credit checks: soft inquiries and hard inquiries. Soft inquiries are surface-scratching reviews that don't impact your CIBIL score. Examples may include a getting a pre-approved credit card offer, a background check from an employer, and yes, you checking your credit report for free once annually. Hard inquiries, such as when you apply for a loan or credit card, do negatively impact your CIBIL score over the short term.
I believe it's worth mentioning as well here that far too few Americans are taking advantage of the fact that they can check their credit reports from all three reporting credit bureaus (Experian, TransUnion, Equifax) for free once annually. It's not uncommon to find errors on your credit report from time to time, and clearing up errors can lead to an instant boost in your CIBIL score.
Your CIBIL score will be at a high rank if you have multiple credit accounts. There are different types of credits - mortgages, car loans, credit cards and personal loans and so on.
However it is not mandatory to open new credits if you don’t have an account into each of one of these. Because it comes back to factor no. 2. That is ‘how much you owe against your credit limit’. If the ratio is not balanced, multiple accounts are of no use.
People make mistakes and sometimes need guidance to get out of debt. However, that doesn't mean that meeting with a credit counsellor is necessarily going to impact your CIBIL score. The company responsible for the CIBIL score that most lenders use when deciding whether to give you a loan:
In other words, if your credit counsellor works out a debt management program that has you paying back far less than you owed, it's possible your score could be negatively impacted based on CIBIL’s model. Generally, though, working out a multiyear repayment plan with a debt counsellor that has you repaying every cent of what you owe won't impact your CIBIL score, though it'll probably show up on your credit report.
This one is only partially right.
Think of your CIBIL score as your driver’s license. You’re responsible for your own record. If you get a speeding ticket, that goes on your record, not your spouse (even if they were in the passenger seat!).
You have your own history that is likely unrelated to your spouse.
The only time they can mirror one another is if all of your debts are shared (or “joint”). That’s because you’re both on the hook and share the payment responsibility equally. If any payment is late in this case, both of you feel the impact.
Credit agencies could really care less about your age, although there can certainly be some semblance of correlation between average CIBIL scores and age.
Fair Isaac takes five factors into account when devising your CIBIL score. The number in parentheses represents its relative importance in determining your score.
Payment history (35%)
Credit utilization (30%)
Length of credit history (15%)
New credit accounts (10%)
Credit mix (10%)
If you're younger, you'll naturally have a shorter length of credit history, perhaps a less desirable credit mix, and of course a shorter payment history than someone who's in their 50s or 60s. However, that doesn't mean you can't have a good or excellent CIBIL score in your 20s or 30s. If you're making your payments on time, using less than 30% of your available credit, keeping good-standing accounts open, only opening new accounts when it makes sense to do so, and you have a nice mix of instalment and revolving loans, you'll probably have a good or excellent CIBIL score regardless of your age.
Your income has no effect on your score, either. Your CIBIL score is a personal representation of your ability to repay your debts on time, and it assesses the use of the aggregate credit available to you. Having a high income doesn't mean you'll necessarily use your available credit or make your payments on time.
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