The CIBIL score is one of the biggest factors that banks take into consideration when deciding on whether or not to approve a home loan application. Your CIBIL score can directly affect your chances of getting a home loan sanctioned, the interest you are charged for it and the tenure of your loan.
This score is a number ranging from 300-900 and is an indicator of your past credit history. A number ranging from 300-550 is considered ‘Poor’ and suggests that you have been irregular with loan and credit repayments in the past. Any score above 750, in contrast, makes you a prime candidate for a loan as it means you have an excellent track record.
Understanding how the CIBIL score is calculated can be very useful to help you improve it.
Here are the top seven factors that impact your CIBIL score.
Since the CIBIL score gives banks an idea of how likely you are to repay your loan, it looks at your past repayment history to establish a pattern. If you have been punctual with your loan repayments in the past, then it will reflect in a good CIBIL score. Your credit card bills are another indicator of your regularity. Paying all credit card bills on time will result in a high CIBIL score. If you have several unpaid credit card bills, on the other hand, don’t be surprised if your CIBIL score is on the lower side.
Having too many loans running concurrently can negatively impact your CIBIL score. If you have applied for multiple loans, it can tell banks that you are living beyond your means. Since you have so many loans to repay, it also makes it more likely that you might not be able to afford repayments on the new loan. Because of this, make sure you complete your installments and close existing loans before applying for a new one. Your CIBIL score will increase almost overnight once old loans are repaid.
One of the common mistakes first-time home buyers make is not utilising a credit card because they believe it will improve their profile. However, the exact opposite is true. While having too many loans can decrease your CIBIL score, having no loans at all can also have the same effect. Your CIBIL score is calculated based on previous loan applications and credit card bills. If you have no credit cards or loans, then there isn’t enough data to calculate your score. In this case, your CIBIL score might be 0 or -1. To increase, you can start making purchases through your credit card or apply for a small personal loan. This will flesh out your credit history and improve your score.
Every credit card comes with a maximum limit that users can make purchases for. It isn’t just how regularly you repay your bills that can impact your score, but how much you use your credit card. If your purchases regularly reach the upper range of your credit limit, it can be a signal for banks that you are irresponsible with your credit purchases. The lower the percentage of your expenditure compared to the total credit allowance, the higher your CIBIL score will be.
Even if you have been disciplined with your loan repayments, your CIBIL score can be affected if you are a guarantor of an individual who isn’t as regular. If the individual defaults on their loan repayment, then you will be required to pay it back on their behalf. In other words, the less punctual they are with their repayments, the higher the risk of you having to step in and pay it. Clearly, banks will be hesitant to approve your loan application if there is a possibility that you might have to repay someone else’s loan in the future. To avoid this and safeguard your CIBIL score, make sure you carefully evaluate your decision before agreeing to be a guarantor.
In some cases, your CIBIL score might be very low even if you have been punctual with all your repayments. If you cannot pinpoint the reason for your low CIBIL score, it might be a good idea to go through your entire credit report. In some rare cases, there might be errors in your credit history, accounting for a poor CIBIL score. For example, loans that have been closed might show up as active, making it appear like you have not been repaying the installments. To ensure that your report is accurate and update it, check all the information on it. If you do spot an error, get in touch with the redressal committee through the CIBIL website immediately to get it rectified.
Once you have identified the reasons for your low CIBIL score, you can start working towards improving it. This can bring you one step closer to purchasing your dream home. If you still haven’t found the perfect home that checks all your boxes, visit Shriram Properties to browse through our landmark residential projects.