What factors lower CIBIL Score?
Since CBIL scores are supposed to be an indicator of your financial habits, the score changes based on how you handle your loans and credit cards. These are some of the factors that can have a negative effect on your CIBIL score.
- Personal loans since personal loans are unsecured loans, taking too many personal loans can cause your credit score to fall.
- Missing loan installments you miss an installment on your loan then it may be viewed as poor financial planning which means that your credit rating will suffer making it difficult for you to secure loans in the future.
- Coming too close to the limit on credit cards if you are too close to the limit of your credit cards too often, it too points at constant debt and an inability to manage money wisely leading to a reduction of your CIBIL score.
- Not paying credit cards back on time just like the EMI for your loans, if you fail to pay your credit card dues on time, they too can have a negative effect on your credit history.
- Not paying credit cards in full you might think that paying just the minimum due on the card or slightly more than that is enough to keep things under control but it’s not. While the banks may not be overly concerned that you have an outstanding balance, CBIL, on the other hand, takes it as a negative sign. For CIBIL, outstanding balance are not a good thing and tend to lower your scores.
- Not having any credit at all It may sound like a good place to be in if you don’t have any loans or credit cards at all when in fact it is not. This is so because not having a credit history means that your credit score is 0 by default which means that if you were to apply for a loan or a credit card, the chances of it getting reject are higher.
- Too many rejected applications for loans/credit cardsIf you apply for a loan or a credit card and your application is rejected, you tend to apply with another bank, and another and so on. Such practices reduce your score for two reasons. The first is that CIBIL takes constant rejects to be a bad sign and secondly because every time a bank requests CIBIL for your credit information, your credit scores come down.
- Settling credit cardsIf you have settled credit cards, that is, if you have negotiated with the bank and closed a credit card after paying an amount lesser than what was due on the card, then your credit history will receive a red flag that could cause trouble later.
How CIBIL scores affect eligibility for loans
While banks may not tell you what CIBIL score makes you a perfect candidate for a personal loan, they do say that your credit score will play a part in the approval of your application for a loan. If your score is below a certain number then chances are that you may not be approved for a loan.
What is a personal loan?
A personal loan is a loan that you can take to cover any emergent expenses like unexpected bills or paying for things like an expensive vacation. The idea of the personal loan is to ensure that you have the funds you need in case of an emergency. The defining features of this loan are that it is unsecured and can be used for anything. Unlike vehicle and home loans, there is no restriction on what you do with the money you get.
Features of personal loans
There are lots of features that serve to make personal loans very attractive to people looking for quick and easy financing options.
- Personal loans can be taken up to the tune of Rs. 30 lakhs and paid back over a period of 6 months to 5 years.
- They require minimal documentation as compared to home loans or vehicle loans.
- They also come with no restrictions on how you use the money from the loans.
- A personal loan can be applied for, approved and dispersed in as little as 24 hours depending on the bank or NBFC (Non-Banking Financial Company) you approach.
- They can be paid back via post-dated cheques, ECS or auto debit facilities provided by banks.
- They also don’t need for you to have any collateral to secure the loan.
- You can go in for a prepayment and pay the loan back before its tenure is over, however, prepayments may attract a fee.
Interest rates for personal loans
Unlike other loans, personal loans tend to be a bit more expensive since the interest rates charged on such loans are higher. Just like with any other loan, the specific interest rates for these loans will differ from one bank to another. The general range of the interest rate can be from 15% per annum to as high as 20% per annum depending on the bank.
Eligibility criteria for personal loans
Since these loans are only available to individuals they come with certain eligibility criteria which are:
- You must be between the ages of 21 years and 60 years in order to apply for these loans. In the case of some banks the minimum and maximum ages might differ based on the bank’s own rules.
- You will also need to have a minimum specified net monthly income. This too changes from bank to bank and may also be affected by the city that you live in.
- Some banks also have rules regarding the EMI which state that the ratio of your net monthly income and the EMI should not be greater than 50.
- The loan is also available only to salaried or self-employed people.
- With some banks, you may be asked to provide a guarantor for the loan.
Documents required
Since personal loans are meant to be easy to acquire, the documentation for them is quite simple and includes the following documents.
- Identity proof in the form of an aadhar card, driver’s license, passports, etc.
- You may also need to provide an address proof like a driver’s licence, electricity or telephone bills. In the case of a driver’s license which has your current address mentioned on it, you may be able to submit that as both ID and address proof.
- You might also have to submit your payslips as proof of income.
How to improve your CIBIL score
If you happen to have a CIBIL score that is not good then there is no reason to lose heart. There are things you can do to improve that score. Here are some tips that can help you improve your credit rating.
- If you have credit cards with outstanding balances then you need to pay them back at the earliest possible because even if you pay the minimum due, it only gets the bank off you back, the remaining is still considered outstanding by CIBIL.
- If your credit score is not good then try to keep the borrowing down to a minimum. Doing this will give you time to recover from your current debt without creating new debt.
- Let’s assume that you have cleared all your debt and decide that to celebrate your freedom from debt you will cancel all your credit cards, DON’T! If you cancel all your cards then you won’t be able to create a credit history when you need one at a later stage.
- If you don’t have cards or loans that can help you create a credit history to get your score going, you can always go in for a Secured Loan like a vehicle loan. Sure you may not get the best interest rate on such a loan but at least you may get a loan that can help you jump start your credit history.
- There are times when you move into a house and realize that because of the misdeeds of the person who stayed there before you, the address has been blacklisted. What you can do in this case is to inform CIBIL of the mistake and get it corrected.
- As far as using your credit cards are concerned, make sure you don’t come close to the limits of your cards too often. If you do then your score might deteriorate further.
- In case you can’t get a loan or a credit card to get the history going what you can do is to approach banks that provide credit cards against fixed deposits. The idea is that you open an FD with them and they will issue you a credit card that has a limit slightly lesser than your FD amount. This will get you into the credit system and get your credit history going.
- In time, even utility bill payments are going to affect your CIBIL score so it’s best to make a habit of making sure that ALL your bills are paid in full and on time.
- If you are rejected for a loan or credit card once, don’t keep applying for one at other banks. Take some time out to fix your score and then apply again.