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Understanding The Factors That Influence Your CIBIL Score

A closer look at the factors that can make or break your credit score and how Bajaj Finance can help.

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CIBIL Score
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Does your CIBIL Score seem like a puzzle? Well, it somewhat is. And every piece contributes to the bigger picture of your creditworthiness. This three-digit number that lenders use to judge how responsible you are as a borrower determines your financial well-being. So, let’s take a closer look at this all-important number and demystify the factors that shape it.

Ranging from 300 to 900, your CIBIL Score is calculated by TransUnion CIBIL, the oldest credit bureau in India. It takes into account various factors that reflect your credit behaviour. The higher your credit score, the more you appear as a reliable borrower. This means you’re more likely to be approved for credit and enjoy favourable terms and lower interest rates. Aim to maintain your CIBIL Score at 750 or higher for the best financial opportunities.  

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So, what are the factors that influence your CIBIL Score?

1. Payment history

Your payment history is like a record of your financial reliability, making up 35% of your CIBIL Score. So, punctual repayments on your credit obligations are crucial to building trust with lenders. Think of it as maintaining a garden: consistent nurture will make it bloom, whereas neglect in the form of late payments and defaults will cause it to wither. So, honour your financial commitments with the timely payment of your dues to ensure a good CIBIL Score. 

2. Credit utilisation ratio

Your credit utilisation ratio contributes to 30% of your CIBIL Score and represents the proportion of your available credit that you’re using. Maintaining a low credit utilisation ratio of 30% or less demonstrates responsible credit management. It’s like using just the right amount of seasoning for a dish, rather than piling on whatever you have and risking a bad aftertaste in the mouths of lenders. 

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3. Length of credit history

Think of your credit history as a tree. Just as a tree grows stronger and more reliable over time, a long credit history builds a foundation of trust with lenders. It’s like having deep roots that demonstrate your financial stability and resilience. While opening new credit accounts can negatively impact your score, you can establish a positive credit history by maintaining old accounts responsibly and avoiding excessive new credit.

4. Credit mix

A diversified credit profile is like a well-equipped toolbox with a variety of tools for different purposes. A mix of different credit types in your financial toolbox is like being prepared for any task that comes your way. Lenders are impressed with such versatility as it showcases your adaptability and ability to manage various financial responsibilities. So, if you already have a credit card, consider adding a secured home/ auto loan and a collateral-free personal loan to your financial portfolio too.

5. Credit enquiries

When you check your own credit report, it leads to a soft enquiry. These have no impact on your credit score. However, lenders consult your credit report each time you apply for credit. These are hard enquiries, and they negatively impact your score. Too many such enquiries within a short period can raise concerns about your creditworthiness. What’s more, they remain on your report for up to two years, impacting your future chances of approval. So, be mindful of the number of hard credit enquiries you initiate and aim to keep them to a minimum.

Tips to improve and maintain a good CIBIL Score

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Improving and maintaining a good CIBIL Score boils down to patiently and diligently practising good credit behaviour. Here are some handy tips that can help you stay on course:

1.    Pay your bills on time and in full. It shows you’re reliable and trustworthy.
2.    Spend within your means and keep your credit utilisation low. It shows you’re responsible where money management is concerned.
3.    Regularly monitor your credit report to keep an eye on your progress and spot any errors or discrepancies that may be hurting your score.
4.    Avoid applying for credit unless necessary to keep hard enquiries to a minimum.
5.    Maintain a healthy and varied credit mix to ensure a robust credit profile. 

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Remember, your CIBIL Score is a ticket to better financial opportunities and a brighter future. So, be proactive and manage your credit mindfully to build a strong foundation for the financial future of your dreams.

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