When you apply for a loan, the lender checks several factors to ascertain your eligibility. One such key aspect is your CIBIL score. It is an indicator of your financial capacity and past credit transactions, crunched into a 3-digit number. The CIBIL score rangeisbetween 300 and 900, where a score of 750 and above is considered excellent.
Unfortunately, even if you’re a diligent borrower making regular EMI payments, a lot of factors can still lead to a poor credit score.
Wondering what these factors are? This article will take you through the top 5 reasons for a low credit score.
1. Repayment history
When you borrow a loan, it is crucial to make your repayments on time. Any delayed or irregular payments, EMI defaults, or outstanding payments on your ongoing loans or credit card bills will all be reflected in your CIBIL report. If you’ve repeatedly missed out on payments in the past, it can negatively affect your credit score. You can carry out a CIBIL score checkonline to keep track of it.
2. Missed payments
So, your EMI due date was close, but you forgot all about it. You might have been struggling on a hectic day or an unforeseen emergency kept you occupied. While it is natural to miss out on certain obligations because of the chaos, constant missed payments can adversely affect your credit report. Credit reporting agencies keep track of all your payments, and any default can lead to a low CIBIL score.
Additional Read: What Are the Things that Can Make Your CIBIL Score Look Bad?
3. A high credit utilisation rate
Your credit utilisation rate is calculated by dividing the total credit utilised by the total credit limit. You might think that paying the dues in time is sufficient to maintain a healthy credit score, but that is not always the case. If you’re taking credit of over 45% to 55% of your sanctioned limit, it shows a higher dependence on credit. It will lead to an increased credit utilisation ratio, thus bringing down your CIBIL score.
4. No credit history
While a poor credit history affects your credit score, well, so does the lack of credit history. No credit history simply means no credit score. If you have never had any loan, utility bill, or credit card in your name, you probably don’t have a credit history. The CIBIL score might also be lower if you have recently started to build your credit.
To overcome this, you can consider applying for a credit card with a person who has a high credit score. It is a good way to construct your credit history.
5. Multiple loan enquiries
If you’ve made multiple loan applications simultaneously, it can negatively affect your credit score. Whenever you apply for a loan, the lender asks for your credit report, and if multiple enquiries are made in a short period, it can lower your credit score. This is because it indicates a serious increase in your debt obligation, which can substantially affect your repayment capacity.
Even if you get approved for several loans, it will still lead to a decrease in your credit score. Make sure to run a regular check on your CIBIL score freeto maintain a healthy credit report.
Additional Read: You Can Still Avail a Personal Loan With a Low CIBIL Score!
The bottom line
If you’re in search of finance, a CIBIL score is an important factor that you need to consider. Before applying for a loan, you must know where you stand. You can simply run a CIBIL score check freeonline with Tata Capital by submitting a few details.
We also support higher eligibility for various loan products, offering finance at reasonable terms. Learn more here.