Top 6 factors That Affect Your CIBIL Score Negatively

CIBIL score plays a crucial role in the approval or rejection of a loan application, as lenders use it to measure a borrower's creditworthiness. This score- a 3-digit number that ranges from 300-900 is, however, not a very well-known concept among most Indians. A recent report has reflected that 2 out 3 individuals are unaware of this rating and its importance.

Therefore, being aware of this concept and the process to check CIBIL score will aid borrowers to know this rating and then make improvement plans.

Nonetheless, they can learn the factors that affect this score beforehand and then plan accordingly.

6 Factors that can affect CIBIL score

Here are the factors that can leave an adverse effect on the CIBIL score of an individual. Here, the term CIBIL stands for Credit Information Bureau India Limited, a credit rating agency –

1. Irregular payment

The payment history holds about 35% weightage on deciding an individual's CIBIL score. Therefore, being diligent in repayment is essential to maintain this rating. Default or delay in payment, even for one instalment, can affect this score adversely.

2. Total debt amount

This pointer holds around 30% importance in determining the credit score of a borrower. Credit rating agencies like CIBIL considers a few tips in this regard. They can take a look at the total debt amount, the types of debt (secured and unsecured), loan tenor, and credit utilisation ratio. Therefore, carrying a high outstanding can affect this rating. After an individual checks CIBIL score, he/she should go through the current credit report to learn more about the outstanding.

3. Credit history

The lack of credit history, especially less than six months, will not generate any credit score. However, this factor holds about 15% significance in deciding the credit score of an individual. Therefore, borrowers with an extensive record have better chances of holding a higher credit score, but it is not always the case.

Individuals with a considerable record may witness its effects on the credit score. In case of a payment default, too many hard queries, etc., this score can go down.

4. Closing older credit accounts

Staying in line with the point of credit history, if an individual closes a credit account with considerable history, it will also negatively affect his/her CIBIL score. The reason being, with the closure of such an account, they will lose a considerable credit history, and subsequently, the score will plummet.

In case borrowers close an old loan account, they can check their CIBIL score, note its effects, and make decisions accordingly.

5. Frequent credit enquiries

Following a loan application, lenders initiate a credit enquiry about the applicant with respective credit bureaus. Such requests are treated as hard enquiries, and they can reduce the credit score. It has a 10% weightage in determining the CIBIL score; hence, refraining from the practice of making multiple loan applications at one go can further reduce this the same.

6. Mistakes in a credit report

Credit reports often contain various mistakes, and this can lead to the lowering of the CIBIL score. An easy way to counter this scenario is to keep a tab on this statement and check if there are any such discrepancies, and eradicate them at the earliest.

These are some prominent factors that can upset an individual's CIBIL score.

The process to check CIBIL score is online, and individuals can complete it through the official website of the respective credit bureau. Additionally, being aware of the pointers that can affect it further helps borrowers to work and improve their CIBIL score to avail a loan seamlessly.