Thursday, 23 March 2017

Focus on Credit Factors Rather than Credit Score

Your CIBIL score is often the only indicator of your creditworthiness, and thus extremely important. Whether you need a higher education loan, land mortgage loan, credit card, or even apply for a job, your credit score can prove to the top influential factor in the process. So, it goes without saying that you must keep your credit score in check, and if need be you must take all possible measures to improve credit score as well.
Finance experts always emphasize on credit score. However, other than that you must also focus on the credit factors too. In fact, by focusing on these factors alone you can greatly improve CIBIL score.  This is because these factors are what that shape your credit report, and thus the credit score.
The following are the most important factors that you must keep a close eye on to avoid being listed on the loan defaulters list and to enhance credit score:
1. Payment History
Every individual follows a certain payment pattern. Some people try their best to pay the credit card bills and loan EMIs on time, every time. On the other hand, there are many people who tend to delay the payments every now and then, often paying after the due dates. Depending on your own repayment behaviour your credit score can be considerably affected.
Of all the factors the payment history is usually the most influential one (in many credit bureaus it makes up for 30% to 40% of the total credit score). In other words, this alone can make your score excellent or terribly poor. Thus, you must never delay your payments. Every single payment matters, and thus be given due importance.
2. Amounts Owed
Your pending debt vs the credit available decides the utilization rate. So, if you are able to repay your debt fast it can improve your credit score fast as well.
Another important factor is credit utilization ratio. It is the ratio of the credit limit available to you on your credit cards and the amount you actually use. Thus, if you are allowed to take credit up to Rs. 2 lakhs and you spend 1 Lakh a month, then your credit utilization ratio is 50%. Generally speaking, a credit utilization ratio higher than 30% is not considered good. High utilization is a sign of hunger for credit, which raises red flags for the lenders.
3. Length of Credit History
The age of your credit card accounts and saving accounts etc. also play a major role in the calculation of your credits score. The longer is your credit history the better it is for your score. This is because longer history, which is decent, can provide more reliable information regarding the candidate. So, if you have a long history of timely payments then you will have extremely high creditworthiness. When dealing with lenders you can easily have the upper hand, and can demand better interest rates on the account of your history alone.
4. Credit Variety
Having a long history with credit cards or home construction loans, small personal loans, etc. is definitely good for your credit score. However, if your history includes all of these then it’s even better. This is because if there is a lot of variety of the credit taken by you it shows you are experienced and know how to handle debt. You can easily get an increment of 10% to 15% if you have a history of decent credit mix.
5. Report Accuracy
Even though credit bureaus try their best to maintain accuracy in their credit reports, errors do take place nonetheless. There are many possible reasons for the same- the bank may not send the correct information to the bureau, or may withhold certain information inadvertently, etc. Sometimes there are printing mistakes too, but can affect your odds of loan sanctioning. 

So, by now you must be able to understand why credit forming factors are equally important as your credit score itself. Be sure to check these factors from time to time as developing this habit can do wonders for your creditworthiness.

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