Your civil score determines whether you will be eligible for new loans, credit cards or not. A higher credit score will almost always guarantee loan and credit card approvals, while a low score will result in your applications being denied. Therefore, a credit score check is often required by both yourself and credit institutions to verify your creditworthiness. There are a ton of websites offering a free credit check, including credit scoring companies like cibil. So be sure to check your score regularly to keep an eye on your progress.
What is the Cibil Score?
A target score is a 3-digit number that determines your creditworthiness. The higher the score, the better the chance that a person will get their loan and card applications will be approved. Therefore, it is important to maintain a high score if someone does not want their loan applications to be refused by financial institutions, as they almost always check an individual’s credit score before approving/declining loan applications. Even if you manage to get a loan with a low credit score, the interest rates are often higher. Maintaining a good score allows you to better negotiate your interest rates with banks and NBFCs.
How is the Cibil score calculated?
Your Cibil score is calculated based on certain parameters. Let’s take a brief look at them.
1. Credit history: This includes all of your borrowings, including your active and closed loans, credit cards, and repayment behavior. It is one of the most important parameters having an impact on your credit score.
2. Use of credit: The amount of credit you use defines this vital parameter. Ideally, a person should strive to keep this level low, because higher credit use reflects credit-greedy behavior, and financial institutions are more likely to be hesitant to approve loan applications.
3. Credit mix: Your credit mix, such as a combination of loans, cards, and other borrowings, is an important factor in determining your credit score. It’s important to have a good mix of different credit instruments on your file for a healthy score.
4. Length of your credit history: The longer your credit history, the easier it is for banks and other financial institutions to determine your eligibility for loans and cards.
5. Difficult requests: Each time you apply for a new loan, a new card or any other type of loan; the financial institution performs a credit score check. This free credit score search results in an in-depth investigation that directly impacts your credit score. Therefore, it is important to limit difficult inquiries to ensure minimal impact on your credit score.
Now that we have a basic understanding of credit score in general and the different metrics that impact your credit score. Let’s look at a few settings that don’t impact your target score.
1. Carrying out a self-check
Each time you perform a credit check using a free online credit search, it does not affect your creditworthiness, unlike a thorough investigation which is recorded each time banking institutions perform a credit check. Additionally, it is important to periodically check your score to ensure that there are no discrepancies in your credit score account due to your loan accounts and credit card repayments not being updated, which would negatively impact your credit score history. If this is the case, it is important to raise a dispute with the credit institution to put things in order.
2. Using your debit card
Using your debit card has no impact on your credit score, as it is a debit instrument unlike a credit card. Therefore, it doesn’t matter how many times you can use your debit card to make purchases or pay for services.
3. Credit card application declined
If your loan or credit card application is denied; it does not affect your credit score. However, as mentioned, every time you apply for a loan, a thorough investigation is done, which impacts your credit score. Therefore, in case your loan application is rejected, it is best not to continue applying for new loans, as repeated rejections will lower your score.
4. Take pay cuts
Even if you take a pay cut from your job, it won’t impact your credit score because credit checking companies don’t consider it an indicator of your creditworthiness.
5. High interest rates on accounts
Having high interest rates on your credit report will not impact your credit score. However, it is important that you manage these loans and credit card payments as it is part of your credit history and will impact your score.
Performing a credit score check using a free online credit score tool helps you keep an eye on your credit health and makes qualifying for loans easier. But even though loans and credit cards help you meet your immediate financial needs, investing is important to building a financially healthy future. Life insurance plans can help you build a corpus by investing in their plans regularly. It is one of the types of investments in India that both secures a financial future and gives you tax breaks.
So if you really want to build a financially healthy future, investing in a life insurance policy is the way to go!
Authors biography: Vinod Gill is a writer specializing in writing content on financial and banking topics. He is a digital marketing consultant, blogger and co-founder of Ecompany.in