While lending monetary assistance like loans or credit cards, especially unsecured ones, financial institutions carry considerable financial risk. Thus, they prefer borrowers with a well-managed and strong credit history. One of the most important factors that financiers evaluate while approving credit applications is the CIBIL score.  

Thus, it is important to understand how credit score functions. Even though it is determined by a proprietary algorithm, the elementary factor is a borrower’s repayment behaviour. 

What is the credit score?

Credit score is a number based on a borrower’s credit history that is evaluated from the payment status and outstanding amounts of credit cards or all loan accounts together. 

This 3-digit number indicates the credibility of an individual. It ranges between 300-900 where 900 is the highest to be considered. 

Individuals with higher credit ratings carry better chances to avail a loan with various facilities. For example, in India, the ideal score is 750 or above.

Calculation process

This score is calculated by evaluating the following key factors –

  • Repayment history

The most important factor while considering this score is the payment behaviour of borrowers. In other words, default or late payments affect the credit rating negatively.

  • Credit enquiries

Multiple credit enquiries indicate the possibility of a higher loan burden in the future. Thus, this also puts a negative impact on the CIBIL score.

  • Credit utilisation ratio

Credit utilisation ratio implies the spending behaviour of the borrower. The higher ratio shows a possible rise in near future debt that increases the financial risk of the lenders.

  • Credit mix

A balanced credit mix of unsecured and secured credits can have a positive impact on one’s score. 

How to increase credit rating?

Individuals who are opting for credits like housing finance need to know the effective ways to improve their CIBIL score for a home loan. Well managed credit score provides better access to future financial needs. 

Here are some important tips to increase the credit score –

  • Borrowers need to pay outstanding balances like credit card dues or loan EMIs on time.
  • By keeping the credit utilisation ratio below 30%, individuals can also positively impact their credit score.
  • Individuals must not apply for multiple loans or credit cards at a time to avoid credit checks.
  • Borrowers need to have a credit history of both secured and unsecured loans.
  • Individuals, who are joint credit account holders, guarantors or co-signers, must monitor the payments monthly. For all the above-said accounts, borrowers are equally liable as their co-holders. Individuals need to know how their credit score is affected when applying for a joint home loan.
  • Individuals must continue to use their old credit card as it carries a long-term history. If necessary, it is preferable to increase the credit limit rather than opting for a new card.

After improving your CIBIL score, you can easily apply for high-value loans like a Home Loan from various financial institutions.

Individuals with a higher credit rating can negotiate loan interest rates, which directly reflects on the EMIs. It is important for borrowers to know how credit score can determine their home loan EMIs before applying.

To sum it up, the CIBIL score is one of the factors that determine an individual’s creditworthiness. In other words, it implies whether the applicant is worthy to avail credit or not. Hence, borrowers need to increase their credit rating for quick credit approval. 


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