Most card issuers and lenders review your credit score at the time you place an application for a credit card or loan approval. Note that for any lender, the CIBIL score requirement is more a less the same. Now that is no matter HDFC CIBIL score or Bajaj CIBIL score, the score requirement usually is 750 and above.
A score of 750 and above is looked upon as excellent for availing a loan application or credit card approval. Any credit score below the 750 mark makes it challenging for you to get access to credit. Even if your credit application is approved, the rate of interest is usually on the higher end. Additionally, a CIBIL score of less than 750 makes it unlikely for any NBFC or bank to lend a loan or get credit card application approval.
In the case, you have not managed your credit in a disciplined and responsible manner in the past, there involves a high chance that your score would be low, which means you hold low credibility and most preferred credit card issuers or lenders would not accept your application for credit. However, if you are aware of the reasons for holding a low score, then you can follow some of the prudent tricks to ameliorate it. Continue reading to be aware of the best practices and reasons to rebuild your score.
Have a low credit score? Discussed here are some of the reasons for having a low score.
High credit limit usage –
In the case you tend to use over 30 per cent of your credit card limit set by the lender, your score would plummet. Your credit card limit is fixed factoring in your income and limits on your expenses. Using over 50 per cent of your credit card limit can show your financial irresponsibility, which may result in a low credit score.
The outstanding balance on your credit card –
Unpaid dues like electricity or telephone bills can even impact your score. These outstanding credits tend to show your undisciplined finances. This may further reduce your credit score in your report. To avoid facing such scenarios, you must ensure to repay all or the maximum of your outstanding loans before you go for a new credit option. In this manner, you can improve your credit score and then prevent yourself from getting overburdened with debt.
Also Check: How to Increase CIBIL Score?
Late repayments –
The most popular reason for low credit scores is late repayment of outstanding loan dues. Defaults or delayed repayments even by one day can reduce your score. This shows the financial institution that you are not able to repay your dues timely. As an outcome, your score tends to take a major hit.
Multiple loan applications –
In the case, you have placed an application for multiple loans within a short time span, it can reduce your score considerably. While your monetary needs can have a genuine reason, availing a small loan from multiple lenders turns the lenders doubtful if you can make the repayments timely.
What is looked upon as a good score?
A credit score of 750 and above is looked upon as a good credit score while a credit score of over 850 is looked upon as excellent. A good score can assist you to bag the desired amount of loan proceeds at a low rate of interest and processing charges. A credit score of 750 and above is most likely to work out in your favour in the course of your loan processing.
What’s the importance of holding a strong credit score?
A strong score is looked upon as a score, which is over 750. This makes the lender consider you to be a trustworthy individual and that you have the potential of making the loan repayments on time. A strong score even enhances your possibility of availing loan approvals quickly and at an affordable rate of interest. Even to avail a personal loan, the minimum score requirement ranges anywhere between 750-900.
Holding a strong score is always crucial owing to the reasons listed below –
· Easy and quick approval of your application for credit
· Wide range of loan deals
· Access to a higher loan quantum
· Possibility of getting a low rate of interest
· Scope of interest rate negotiation with the lender for fixing a reasonable rate of interest
· Zero restricting conditions on getting a loan
· Instant sanction of loan
What is the impact of your credit card on your score?
Not repaying your credit card outstanding amount on time –
Missing out on your credit card outstanding amount can not just result in late payment fees and additional interest charges but even extremely affects your score.
Repaying just the minimal amount due (MAD) –
Repaying just the minimal amount, which equals a small fraction of your overall outstanding dues can extremely enhance your CUR (credit utilisation ratio), in turn, lowering your score.
Maxing out –
Exhausting your whole credit card limit would show you are credit hungry, which is something that can even reduce your score considerably.
Applying for the multiple credit options in a short time span –
This would convert to multiple hard inquiries on your profile, which in turn may reduce your score. Multiple credit card application turndowns can result in a bigger drop in your score.
How can you maintain a good credit score?
Make repayment of your loan outstanding timely and in full
Being responsible and disciplined with all your credit card outstanding and repayments is a prudent and effective means of building, maintaining, and improving your score over time. In contrast, missing out on your loan dues or defaulting or opting for the settlement measure can be extremely detrimental to your score.
Avoid multiple applications for credit
When you are planning to place an application for a credit card or loan, you must ensure to compare the distinct options carefully and then place an application for the card or loan variant that matches your needs. Applying for multiple credit cards or loans, particularly in a short time span can impact your credit score negatively.
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