Credit scores are often a mysterious uncertainty for most. Let’s talk about life goals instead. Are you dreaming of buying a home? Starting a business? Retiring comfortably? Well, your CIBIL Score is the linchpin when it comes to making those dreams a reality. Rather than viewing it as an inscrutable gatekeeper holding you back, treat it as a vehicle to navigate towards your aspirations.
By understanding your CIBIL Score and the forces that influence it, you gain the power to direct your financial journey. You get to shape it with your financial habits. So, it’s important to build habits that help you build the life you want.
What is your CIBIL score?
The cornerstone of your financial fitness is a three-digit number that numerically summarises your creditworthiness. Ranging from 300 to 900, a higher score of 750 or more indicates robust credit health. Conversely, a lower score of 600 or less represents risky credit behaviours.
Contributing factors and their impact
So, where does this number come from? It’s calculated using a proprietary algorithm by TransUnion CIBIL by assigning specific weightages to 5 key variables. Understanding how these factors influence your creditworthiness is the first step towards financial empowerment.
- Repayment history: This refers to your track record of repaying past credit obligations on time. Consistently making loan and credit card payments by the due date has a positive impact on your score. Conversely, late payments or defaults can lower your score.
- Credit utilisation ratio: This compares how much credit you’re using versus your credit limit. Maintaining low utilisation by keeping balances low compared to your total available credit helps demonstrate responsible usage and improves your score. High utilisation near your limits can negatively affect your score.
- Length of credit history: Having a longer established credit history with older accounts demonstrates experience managing credit, which boosts your score. Too many new accounts or a short credit history lowers your score.
- Credit enquiries: When you apply for new credit, lenders check your report which counts as a hard enquiry. Multiple hard enquiries in a short span harm your score as it suggests you’re living beyond your means and are overly dependent on credit.
- Credit mix: Having experience with different types of credit – such as credit cards, unsecured personal loans, secured home/ auto loans, etc. – demonstrates well-rounded management of diverse account types. This diversification helps improve your score compared to having experience with only one type of credit.
Each of these factors plays a pivotal role in determining how trustworthy you appear to lenders. A solid repayment history and prudent credit utilisation signal financial responsibility, earning the trust of lenders.
Managing credit factors to enhance your score
- Pay bills on time: Set payment reminders and automate payments to avoid missed due dates. Even one late payment can negatively impact your score so consistent on-time repayment is key.
- Lower utilisation: Keep balances low by paying off high balances before the statement date. Consider requesting credit limit increases to further lower your utilisation ratio.
- Allow accounts to age: Avoid closing old, established accounts as a longer credit history improves your score. Use older cards occasionally to keep them active.
- Limit hard enquiries: Only apply for credit when you need it to avoid unnecessary hard enquiries. Shop around and compare for any given loan within a focused period to minimise enquiries.
- Diversify credit types: Consider occasionally opening new credit types you don’t already have (card, loan etc) to demonstrate experience managing different accounts. However, don’t open too many accounts too fast.
- Monitor your report: Check your credit report regularly to identify any errors, discrepancies or suspicious activity so you can address issues promptly.
The key is developing long-term habits that demonstrate responsible credit management. Commit to smart credit behaviours and your CIBIL Score will reflect your efforts over time.
How Bajaj Finserv Credit Pass can help
A unique CIBIL-powered subscription service, the Bajaj Finserv Credit Pass is designed to provide real-time insights into your credit health. Available in two affordable variants, the Credit Pass brings your CIBILS core to your fingertips. You can check your monthly CIBIL Score as many times as you want, without impacting it in any way. Its personalised dashboard provides a comprehensive view of all your credit accounts and the contributing elements making up your score.
From credit factors tracking to your real-time Credit Health Report, it equips you with access to details that matter. It not only illuminates the influencing factors, but also offers tools like the Credit Score Simulator to help you navigate financial decisions strategically. Armed with these insights, you have the tools to proactively manage your credit health.
The Credit Pass ensures that your journey to improve your CIBIL Score is not only transparent, but also within your control. Sign up today and use its resources to take purposeful steps towards the life you envision.
