Do you think that High CIBIL scores will get you loans from banks and lending institutions easily? No, not at all, it is not true. You can see the upper portion of CIBIL Report of a customer (Name erased to protect Privacy) and it says that he has 817 scores to his credit, much more than the minimum level of 750 fixed by major lending institutions. From the first impression, the customer should be immediately sanctioned the loan after fulfilling other norms, terms, and conditions of the lending Banker.
But the lower portion of the Credit Report, which is Activity Report, warns the lending Banker the customer has a credit history of late payment of installments along with a history of written off accounts as shown in the image. Prudent Banker will take cognizance of the adverse remarks in the Credit History along with other norms before proceeding to process the loan or before granting in-principle consent to sanction the loan if otherwise in order after checking the security aspect and repaying capacity of the borrower.
Generally speaking, Credit scores ranges from 300 to 900. The closer you are to 900, the more confidence the credit institution will have in your ability to repay the loan and hence, the better the chances of your application getting approved. On an avergae, anything above 750 is considered a good credit score.
How to get better Credit Score:
Your Loan application is either sanctioned or rejected. Good or Bad Credit Scores are synonyms to Sanction Rejection. However, the following factors are responsible for your credit scores going up or down:
- Repayment History: No, need to explain and make your loan payments well in time as delay of even 1 day will get reflected in your Credit Report.
- Utilization of Credit Limits: Utilize the credit facilities judiciously. Continuous full utilization of Credit Card limits can reduce your credit scores.
- Debt Servicing Time Duration – The wise borrowers take long-term loans to reduce the burden of repayment and smooth repayment of loans. Long Term Loans create long unbeaten credit histories.
- Higher percentage of Credit Cards or Personal Loans: More percentage of unsecured credit facilities like credit cards and personal loans as compared to secured loans, more is the risk for getting low scores. Secure Loans push up the Scores.
- Credit Applications: Never ask any Banker or Lender to draw your Credit Report as every inquiry by a lending banker will lower your credit score and all inquiries will get reflected in your Credit Reports. It is better to purchase the Credit Report from CIBIL directly even if you are to pay for the Credit Report. Go with confidence to your lending banker after proper analysis of your Credit Report from Professional Credit Score Consultants.
- Being a Guarantor on loans– If you are a Guarantor or Joint Borrower in any loan then your credit history will not be better than your Principal or Co-Borrower.
- Loan settlement– Before settling the loans with Banks or Lending Institutions, It is better to Consult the Credit Consultants, who will ensure that the settlement does not affect your Credit History debarring you from future loans.
- Credit Mix – To create good credit history the individuals should use their credit cards and also avail EMI based secured and unsecured loans.
- Reducing the number of credit cards – If you think that by surrendering your 3 credit cards out of 5 will enhance your Credit Scores then it is a wrong notion. Surrendering a credit card means that the total credit limit goes down and the credit utilization increases. Suppose you had 4 credit cards with a credit limit of Rs 400,000 and utilization of Rs 40,000 and you surrendered two of them. This leaves you with a credit limit of Rs 200,000. Your credit utilization ratio changes from 16.% to 25%. This has a negative impact on the CIBIL Score.
- Not using the credit card – Inactive Credit Cards or Unused Credit Limits can not create any good credit history.
- Not checking the credit report – Sometimes banks pass on wrong information or even while passing the correct information – they make mistakes in PAN Numbers, Aadhaar Numbers or Mobile Numbers leading to strangers’ loan accounts creeping in the Credit Reports of the borrowers.
- A Score of “NA” or “NH” is neither a bad thing nor a good thing as individuals with NA or NH get average score ratings as they have either never taken any loan or there is no credit history during the last 5-7 years. “NA” or “NH- Called No HIT” is inferred as under:
- You do not have a credit history or you do not have enough of a credit history to be scored, i.e. you are new to the credit system
- You do not have any credit activity in the last couple of years
- You have all add-on credit cards and have no credit exposure
It is important to note that while these Scores are not viewed negatively by a lender, some lenders’ credit policy prevents them from providing loans to an applicant with Scores of “NA” or “NH” (applicants with no credit track record). Hence, you may have better chances applying for a loan elsewhere.