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what is CIBIL and how it affects your credit score?

what is CIBIL and how it affects your credit score?

December 1, 2021
5 min read
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expanded as Credit Information Bureau India Limited, CIBIL is a credit rating agency which maintains a vigilant record of the credit activity of individuals across the country. lenders such as banks and other financial institutions, which are members of CIBIL, submit their records to the agency periodically. this information and record serves as the basis for the development of the credit score of an individual.
CIBIL offers several products as a result of its operation, which is later used by financial institutions for various purposes. this includes the CIBIL credit score and credit report, which are often regarded as the credit rating by CIBIL. the agency uses a defined parameter of numbers to designate a credit score to an individual.
while there is a huge range between the lowermost and topmost credit score, you may want to find yourself on the upper end of this range. a low credit score can taint your credit rating and make it difficult for you to obtain credit if you ever need it. you might be wondering what is CIBIL score and how you can improve your CIBIL score.
let us find out about the factors which impact your credit rating.

what is CIBIL score and what is the impact of CIBIL rating on your credit score

1. repayment of credit
your lenders may be interested to know about your ability to repay a loan owed to a financial institution. it would serve their purpose to judge your ability to meet your liabilities on a timely basis and reduce your debt. on a broader note, your ability to meet your repayment schedule on time explains how well you're able to meet your obligations. 
to be on the safer side, no lending institution may want to extend any credit to you if you have a pattern of defaulting on your payments. thus, if you have a been late to settle your claims in the past, it is going to reflect negatively in your credit rating, which will eventually lower your credit score. 

2. credit utilisation ratio
this refers to the ratio between the quantum of credit you use against the total value of credit which you are authorised to use. experts recommend that this ratio be maintained between 25 – 30% range for an optimum credit rating from the agency. if you're able to keep your ratio at par, the positive credit rating will boost your credit score.

3. ownership of credit cards and loan
if you did not already know, a credit card and a personal loan are both forms of unsecured loans. on the other hand, other loans such as auto loans and home loans happen to be secured loans. if you own too many credit cards or personal loans in your collection of credit as opposed to secured loans, it will impact your credit rating negatively. 
your credit score is likely to fall as a result. the best way out of this is to have an equal balance of secured and unsecured loans in your portfolio of credit. this will positively impact your credit rating, thus enhancing your credit score.

4. new accounts in a short span of time
if you're adding too many credit cards and loans in your portfolio in a short span of time, your credit rating will be badly impacted. it is not a good idea to add too many credit sources in your name one after the other. always seek credit when you need it, and time it systematically to avoid collecting too many credit sources in one go. 
your credit rating is poorly impacted when you engage in this practice, leading to a consequent fall in your overall credit score. experts believe that this factor alone comes to affect about a quarter of your credit ratings. 

5. number of negative marks
can you imagine getting negative marks on your financial performance? getting a negative mark could mean any one of the following:

  • foreclosure of an account or loan.
  • defaults in payments leading to accounts in collection.
  • gaining a negative remark on your loan status.

in its essence, a negative mark means that you have not been able to manage your credit with caution. before you rule out this factor as nothing, know that it is a heavily weighed one when it comes to assessing your credit rating. this makes any lending agency become wary of you and subsequently makes them reluctant to lend you any credit. you must aim at improving your score with careful planning. 
negative marks will come to impact your credit ratings negatively and bring down your credit score. since it gives your lenders the impression that it is not a good idea to trust you with repayments, they may not be willing to extend any line of credit to you.

6. number of hard enquiries
a hard enquiry will occur when a potential lender gains access to your credit information report. they may be doing so to check if you are eligible to get a loan or not. while a single enquiry may only marginally lower your credit rating, multiple enquiries in one go may do the damage. 
it clearly indicates that you are in dire need of credit, and you are approaching multiple lenders to increase your chances of getting credit from any one of them. the number of hard enquiries conducted in your name comes to impact your credit rating, which will only reflect poorly on your credit score.

in conclusion

by now, you must have understood what is CIBIL score and how it gets impacted by your credit rating. it is essential to keep a check on your credit report from time to time if you make consistent use of credit sources. it will help you maintain a strict vigil over your credit score and avoid a situation where you face hurdles in obtaining fresh credit. additionally, it can also give you an idea about what changes you can make to improve your score over time. 
you can use applications like CRED to keep track of your credit score and manage your credit on a timely basis. check your free credit score on CRED.