In case you’re in a tizzy because your credit score/CIBIL score has taken a nosedive, you should know the reasons so you can rectify issues. Your CIBIL score says a lot about your financial health and maintaining a good score is a priority. The reasons for a low CIBIL score range from delayed payments to loan defaults and more. The bottom line is that if your CIBIL score has fallen into the doldrums, you must bring it to acceptable levels. A CIBIL score implies a negative CIBIL report and this can have far-reaching adverse effects for your financial future.
What is a CIBIL Report?
A CIBIL score is a three-digit number, ranging from 300 to 900, determining your credit rating. A score of 750 and above is considered satisfactory by authorities that issue loans. An American organization, TransUnion CIBIL has formulated this calculation and it is widely used in India. A CIBIL report is also generated, based on several financial factors. These factors are payment history, credit types, existing loans, credit history, etc. Technically, a CIBIL report is a measure of your creditworthiness and shows your ability to make good on a loan. Your CIBIL score is a credit score and a numerical value of this report.
Why is a CIBIL Report Important?
A CIBIL Report is important as it helps borrowers and lenders in the ways mentioned below:
- Credit Status of Borrowers – A CIBIL report aids borrowers in knowing about their credit status. If you, as a borrower or user of lines of credit like loans, credit cards, etc, see that your score has fallen, you can take measures for rectification.
- Information for Lenders – A CIBIL report helps lenders, who may be in the process of issuing loans to you, to know whether you are financially sound.
Why your CIBIL Score has Fallen
In case you discover that your CIBIL score/credit score has fallen, there’s no cause to fret. You can raise it, though a fallen score will temporarily hamper you in the process of taking a loan, till your credit score reaches 750. The reasons for a drop in your CIBIL score may be one of many (and hopefully not more than one!):
- A Poor Repayment Record – One of the key factors leading to a fall in your CIBIL score is linked to your repayment history. Frequent delays or non-repayment of previous loans like EMIs/credit card payments show you are a defaulter. Experts say that a single missed/delayed payment may result in a lowering of scores.
- High Credit Utilization Ratio – The Credit Utilization Ratio is determined by the total amount of utilized credit divided by the total of available credit across loan and credit card accounts. If you have a high credit utilization ratio, for instance, more than 30%, it shows your high dependence on credit. This translates to a huge burden on you to repay loans. Hence, you are perceived as a risky proposition for lenders.
- Multiple New Credit Applications – If you have submitted several applications for new loans in a single go, and within a short span, you may be seen as ‘’hungry for credit’’. Potentially, this means you pose a greater risk of defaulting on payments.
A Way Out
The way to retain a good credit score and thereby, a decent CIBIL report, is not to have a low amount of loans, but a track record that shows you are not a defaulter. For more information about fallen credit scores, you can check out Finserv MARKETS. Also learn in detail about credit reports at Finserv MARKETS.