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A credit score is an important financial indicator and it can drop for a couple of reasons. Being able to identify the cause quickly can help you get your score back on track. Let’s start by understanding a bit more about credit scores.
What Is a Credit Score?
Your credit score can tell a lot about your financial health. A credit score ranges from 300 to 900 with higher scores indicating better credit trustworthiness to a lender, bank, or a Non-Banking Financial Company (NBFC).
There are four different credit scores considered in India. Let’s understand them better.
What Are Experian or CIBIL Scores?
Four credit bureaus in India collect, collate, and aggregate financial data to compute credit reports. The bureaus are licensed by the Reserve Bank of India (RBI). The four credit rating agencies are:
- TransUnion CIBIL
- Equifax
- Experian
- CRIF Highmark
Credit scores are also called CIBIL scores because TransUnion CIBIL Limited was the first credit rating agency in India. Most people do not understand the importance of good and bad CIBIL scores until they apply for loans. Learn more about CIBIL scores and how to check credit scores online.
Even if you’re a seasoned borrower or a newbie to CIBIL scores, it’s better to stay ahead of the curve. Here are some of the factors that can lead to a bad credit score.
Lesser Known Factors That Can Lead to a Drop in Credit Scores
Make a note of these factors so that you can maintain a healthy credit score:
1. Late Credit Card Payments
Delay in payments and missing due dates can hurt your credit score. You can rectify this by setting up personal reminders or an eNACH registration with the bank. Electronic National Automated Clearing House (eNACH) involves a one-time authentication to register your net banking or debit card details which will automate payments without paper mandates.
2. Are You Using Your Entire Credit Card Limit?
Each credit card comes with a credit limit. A Credit Utilisation Ratio (CUR) is the amount of credit you are using divided by the total amount of credit you have available. So if you have ₹1 lakh available in credit, and you use ₹50,000 your CUR is 50%. It is better to keep your credit utilisation under 30% because it indicates that you are doing a good job managing credit.
Utilising the entire credit limit can damage your CIBIL score. You can amend this by increasing your credit limit or spending credit below 30%.
3. Frequently Applying for New Credit Cards or Loans
Multiple applications for credit in a short time, either in the form of new credit cards or loans can shave off a few points from your CIBIL score. This is because banks and lenders might consider you to be ‘credit hungry.’
4. No History (NH) of a CIBIL Score
If you are new to credit, you are likely to have a very low credit score. Build a healthy CIBIL score by making payments on time and avoiding delays. This will ensure that your credit score rises which can lead to better education loan interest rates. Learn how you can get better student loans.
5. Does It Matter If You Close an Old Credit Account?
Closing and opening credit accounts can affect your credit score. When an old account is closed, it lowers the average age of your credit accounts and decreases your overall available credit which negatively affects CUR.
If you’re worried about your credit health, you can do a CIBIL score check online. There can be higher interest rates for loans with a low CIBIL score. Read further to understand what you can expect when applying for a loan for education.
Have You Heard of Customised Loans?
Banks and lenders don’t typically look beyond traditional credit scores for education loans, but Propelld does. Propelld offers customised loans that factor in a student’s academic merit and future earning potential. This means that you won’t have to give up on the course of your dreams. Here are some of the other benefits of choosing Propelld:
- Collateral-free loans
- 100% digital application, approval, disbursal, and payment collection
- No-cost EMIs
- Quick loan sanction within 48 hours
If you notice a drop in your credit score, it is important to take action. Take care of your financial health and remove the barriers to your education with Propelld’s customised loan plans.
It is important to take charge of your financial health and understand credit scores well. Let’s take a look at some of the most commonly asked questions about credit scores that can give you a better picture.
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