Understanding your credit score

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What is the CIBIL TransUnion Score?
The CIBIL TransUnion Score is a 3 digit numeric summary of your credit history. This Score is derived by using the details found in the ‘’Accounts’’ and ‘’Enquiries’’ sections on your Credit Information Report (CIRI) and ranges from 300 to 900. The Closer your Score is to 900, the more favourably your loan application will be viewed by a credit institution. The Score plays a critical role in the loan approval process.
What does my Score mean?
An Individual’s Credit Score provides a credit Institution with an indication of the ‘’probability of default’’ of the individual based on their credit history. What this mean in simple English is that the Score tells a credit institution how likely you are to pay back a loan (should the credit institution choose to sanction your loan) based on your pattern of credit usage and loan repayment behavior. The closer you are to 900, the more confidence the credit institution will have your ability to repay the loan and hence, the better the chances of your application getting approved.
What are the major factors that affect my Score?
There are 4 major factors that affect your Score. These are described below:
1. Late Payments or defaults in the recent past: Your payment history has a significant impact on your Score. Hence, If you have missed payments on any of your existing loans, over the last couple of years, your Score is likely to be negatively affected because it indicates that you are having trouble servicing your existing obligations.
2. High utilization of Credit Limits: White the balances on your loans will only reduce over time as payments are made, you must be diligent about making timely payments on your credit cards. While increased spending on your credit cars may not necessarily negatively affect your Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact your Score. It’s always prudent to not use too much credit.
3. Higher percentage of Credit Cards or Personal Loans (Commonly known as Unsecured Loans) on Your CIR : A higher concentration of home loans or auto loans (Commonly known as Secured Loans) is likely to be more favourable for your Score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, its also by far the most expensive form of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest.
4. Behaving ‘’Credit Hungry’’: If you have made many applications for loans, or have recently been sanctioned new credit facilities, a credit institution is likely to view your application with caution. This ‘’Credit Hungry’’ behavior indicates your debt burden is likely to. Or has increased and you are less capable of honouring any additional debt and is likely to negatively impact your Score.
What does it mean when my Score is “0” or “-1”?
A Score of “0” or “-1” is not a bad thing at all. These Scores mean 1 of 3 things:
a) You do not have a credit history of you do not have enough of a credit history to be scored, i.e. you are new to the credit system
b) You have had no credit activity in the last couple of years
c) You can all add-on credit cards and have no credit exposure
It is important to note that while these Scores are not viewed negatively by a credit institution, some credit institution credit policy prevents them from providing loans to an applicant with Scores of “0” or “-1”(applicants with no credit track record), Hence, you may have better chances applying for a loans elsewhere

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