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Reasons Why You Have A Low CIBIL Score?

Taking a loan or issuing for a credit card can be an issue for you if you have a comparatively low CIBIL score. To know about how to have a good CIBIL Score, firstly we need to know what is a CIBIL Score.

What is a CIBIL Score?

The full form of CIBIL is basically Credit Information Bureau India Limited. It was established in the year 2000. It is India’s first Credit Information company which collects and maintains all the credit related information of the individuals and the corporates. This includes the loans and the credit cards. The member institutions are the ones who submit the records to the Credit Bureau in regular intervals.

These records help the Credit Bureau to make a credit report and issue a credit score accordingly.

CIBIL is basically the database which holds the entire credit information. CIBIL provides the Banks and the financial institutions the credit information they need before they issue a loan to an individual or a corporate. It is a three-digit numeric summary of the individual or corporate’s credit history.

In India, CIBIL is now owned by an American Company called TransUnion. The competitors to TransUnion CIBIL in India are CRIF High Mark, Equifax and Experian. These are the 4 companies which have been licensed by the Reserve Bank of India. But even though the 4 credit information companies have an individual credit score, the CIBIL score is the most popular credit score among the four.

Normally CIBIL Score is also known as Credit Score. The TransUnion CIBIL is the body which calculates the Credit Score. Credit score ranges from somewhere between 300 and 900. According to Indian Standards, 720 is an ideal CIBIL Score.

A good CIBIL score will help you get the required loan faster but a Low score will make the process slower.

Low Credit Score

An excellent score is anything from the range of 750 to 900. Whereas, a good score can be anything from 650-750. And an average score is basically when your credit score is ranging from 550 to 650. And finally, a Poor or Low score is having a credit score of 300 to 500.

A Low CIBIL Score is mainly when the credit score is less than 700. This can lead to things like the loan or credit card applications getting rejected.

Additional documentation would be required to prove the credit worthiness. As the lender might feel that you are high-risk borrower, they might charge you with a higher rate of interest because of the low CIBIL score.

How can a CIBIL Score be Calculated?

Repaying the credit, you had in the past can also determine how your score will be in the present. Missing payments can cause to reduce the credit score.

The type of Credit that you take, contributes to around 10% of your CIBIL score. In order to create a positive contribution, there should be a balance of credit. Taking both type of loans i.e. Secured and Unsecured Loans will be helpful.

If the loan has been repaid in a shorter duration, this too will help in building a good score. This contributes 15% to the score. Making timely payments will be a plus point.

Using too much of the credit with comparison to your income, can reflect negatively on your CIBIL score.

What are the Factors that affect your CIBIL Score?

There are factors which a considered by the TransUnion CIBIL. These factors create problems for the individual and the corporate leading to have a Low CIBIL Score. Here are some factors which affect the Score 

  • Payment Behaviour is Irresponsible 

The credit score has a big impact depending on how the payment history has been. Payment of the credit card bills and the EMIs of the loans need to be paid on time on a monthly basis. If the payment has crossed the 30-day delinquency, the credit score can get reduced by 100 points. When there is an irregularity in making the payments of the loans and credit cards, it starts affecting the CIBIL score.

  • High Credit Utilization Ratio 

The amount of credit which is used in proportion to the credit limit which is available is know as the Credit Utilization Ratio. The lenders don’t find it appealing when they see individuals with a high credit exposure. This indicates that there is a high risk of defaulting. If there is a use of over 50% of the credit limit, this has a negative effect on the credit score.

  • Outstanding Debt 

Any kind of payments which haven outstanding or dues which are unpaid are the ones who start affecting the credit score.  So instead of keeping dues unpaid, paying off the debts will help even if the amount is small.

  • Payment of Minimum amount which is due 

Paying off the minimum amount is a good option but there is an after effect. Making payments of minimum amounts can make an individual fall into a debt-trap eventually. In such a situation, the interest starts getting compounded on the balance which is outstanding.

  • Credit Mix 

The diversity of the credit accounts which is used for calculating the credit score is known as the Credit Mix. Having a Credit Mix will strengthen the credit history and make the profile appear as creditworthy. The credit score too gets greatly influenced by the mix of the credit accounts against the loan portfolio.

  • Debt to Income Ratio 

The financial institutions mainly consider the debt to income ratio before they approve any credit applications. When there are multiple open credit accounts, the ratio is higher with regards to being overburdened by monthly EMIs. It is better to have a ratio which ranges from 25% to 35%.

  • Errors in the CIBIL Report 

A CIBIL report contains a detailed record of the past and current credit accounts. But there are often occurrences of errors while maintaining a CIBIL report. If these errors aren’t rectified, it might hamper the score. These errors can only be rectified by the lenders. CIBIL doesn’t look after maintaining the report and wouldn’t make the necessary changes. Keeping a check on the credit report can also help if to find out if there is any type of identity theft.

  • Length of Credit History 

Since the first time a credit has been taken till the present, it is shown in the credit history. If the credit history is long, the lenders contemplate on whether they should give credit or not. If a good credit history is built from the beginning, there will be a good record of credit transactions.

There are few questions which people have when it comes to having a low CIBIL score. Here some answers to those questions which might help.

1) How to get a Credit Card with a low CIBIL Score?

When there is an issue like having a low CIBIL Score, it becomes difficult to apply for credit cards. But there are credit cards which can be applied for if you have a low CIBIL Score.

A secured credit card can be issued when you pledge a high-value asset such as an investment as a collateral. The credit limit will be assigned as per the value of the asset.

There is also the credit card which can be issued by the primary bank. If you have a long-time customer, the bank will issue a credit card instantly.

A High-fee unsecured credit is the one when the issuer offers you without the need for a good credit score. These credit cards will help build the credit score and take it to 750 as there are no deposits involved just a high-fee is charged to maintain it.

2) How to get a Personal Loan with a low CIBIL Score?

Having a low CIBIL score can cause problems like applying for a personal loan when it is needed. One of the options which can be considered is to apply for a joint loan as a Co-applicant. This is only applicable if the Co-applicant has a high credit score so it will balance the credit.

A guarantor can also be an option if the person defaults so the guarantor would be liable to pay the loan. Applying for a lower amount of loan as the lender will be less reluctant in such situations.

3) What happens if you have a low CIBIL Score?

When you have score which is low, one of the options that can be applied is to pay back your dues on time and build up a good score.

It will become really challenging for you to access credit and even if the application of the loan gets approved, the interest rates will be higher than usual.

Having a credit score which will be lesser than 650, there are high chances that neither the loan will get approved nor the credit card application will get accepted.

Ways to improve your CIBIL score

When the CIBIL score gets out of hand and starts getting low, people often find ways to make sure that they don’t fall into the other side of the line. So there are certain ways through which you can improve your CIBIL score.

  • Paying bills on time 

One of the factors affecting the score negatively is making late payments. So, you have to make sure that you pay all the bills, credit card bills and loans on or before their due date. This will help in improving the credit score.

  • Keeping the credit utilization low 

Having a credit utilization which is high can impact your CIBIL score as well. In order to not have any problems with the score, it is better to keep the credit utilization below 30% of the credit limit.

  • Maintaining the Credit Mix 

When you wish to improve the score, having a mix of different types of credit such as credit cards, personal loans, home loans and others can be really helpful. The credit mix will help you in balancing the score.

  • Not closing the old credit accounts 

When the score needs to be determined, the length of the credit history is also taken into consideration. Having the old credit accounts and keeping them open in a good standing can really help in improving the CIBIL score.

  • Disputing Errors 

There are often scenarios when there might be an error in your credit report. At such times, you have to have a dispute with the credit bureau. If a good score needs to be maintained, having the accurate information on your credit report is necessary.

  • Limiting new credit applications 

The best way to have a control over the credit score is to limit any new credit applications. Because every time you apply for credit, it gets recorded in your credit report which then lowers your score.

  • Paying off the debt 

Credit card debt once paid off can ease down your stress. Credit card debts are basically high-interest debts. Paying them off will improve the score gradually.

  • Monitoring the credit report regularly 

It is better to keep a track on the credit report and the credit score in regular intervals. Each and everyone has the right to a free credit report which needs to by each of the credit bureaus at least once a year.

Conclusion:

In Conclusion, it is better to keep a proper track on your credit report so that you maintain your credit score and don’t let it go low and create problems for yourselves. Because prevention is always better than cure.

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