5 Vital Factors That Affect Your Credit Rating

5 Vital Factors That Affect Your Credit Rating

What is credit rating? Your credit rating is the analysis of your creditworthiness. It is in general terms or a specific financial obligation and debt. A CIBIL rating signifies to your creditor if you are an ideal borrower.

On the basis of your credit rating, a lender can predict your ability to repay and forecast possible defaults.

But, what factors affect your credit rating or make it? Let’s check out this article! Read on!

What is credit rating, and what is its importance?

A CIBIL rating is assigned to an individual as per his records and ongoing debts repayments. The better is the ability of a person to repay; the higher will be the credit rating of that particular individual.

Your credit score is an integral part of your credit rating. Your CIBIL score for loan approvals should be 750 or more. This way, you can enjoy lower loan rates and manage reduced EMIs.

Also Read : Learn more about the different credit card types and categories in India

A personal loan for CIBIL score of 550 means you may not get the approval. Even if you get it, the rate of interest could be on the higher side.

What factors influences your credit rating?

Irresponsible repayments

The biggest element affecting your credit rating is your payment record. If you have managed to make timely repayments, your credit rating will be in good shape. If you default your loan EMI by 30 days, for instance, it can reduce your credit score by 100 points.

Avoid high credit utilization ratio

Using a higher portion of your available credit can also affect your credit rating. It denotes that you are dependent on credits to manage your debts. Thus, your focus should be to lower down credit utilization ratio.

Not clearing an outstanding debt

Not paying off your outstanding debt can jeopardize your credit rating. If you have any outstanding debt, it reflects badly on your CIBIL rating. Thus, try clearing it off for sure.

Paying only the ‘minimum amount due’ on your credit card

A ‘minimum amount due is a small amount of the principal that remains outstanding per month. If you pay only the ‘minimum amount due for your credit cards and other debts, you may fall into a debt trap. It may lead to the compounding of the interest on your remaining outstanding balance.

This way, it may take years to repay a loan or a credit card bill. It can affect your credit rating badly. Thus, it is a must to pay off your credit card and other similar bills in full. If you continue making the minimum amount, it also showcases a lousy repayment aptitude. Your CIBIL score will take a hit, and you may not get approval if you apply for a loan in this scenario.

Not having a mix of credits

It is the habit of many borrowers to apply only for unsecured debts, such as a personal loan, credit cards, and more. They bother to apply for secured ones like a home loan, or may not have the requirement. But, it is bound to affect your credit rating. It is where it becomes a must to maintain a mix of credits.

You should aim for a combination of credits like the secured and unsecured loans. Why? It affects your credit rating and improves it if you do that.

Elements affecting your credit rating are now well known to you. If you consider them property, nothing can keep your credit rating and the CIBIL score lower.