The report essentially underpins the growing adoption of CIBIL report and the CIBIL TransUnion Score as a mode of risk assessment by the financial bodies. But, most of the time people mistake zero default on loan repayments and credit card payments as their straight pass to a clean credit score record. Surprisingly, it’s not just default-less payments but rather more factors, which are enlisted below that are responsible to affect a credit score.
1. Credit limit expansion: Think twice before approaching a bank to request extension of credit limit on your credit card as such requests lead to hard enquiries by the bank. A 'hard enquiry' implies that the bank has reached out to CIBIL in order to evaluate your credit worthiness. Such enquiries impact the credit score of an individual.
2. Surrendering of extra credit cards: Many think that giving up the extra credit cards would improve their credit score, but it works just the other way around. For example, if a person has two credit cards with a total credit limit of Rs. 3,00,000 and recorded a usage of 50,000 each month, then his actual credit utilization percentage stood at 16.67%. But, if he surrenders one of the extra credit cards, it would apparently mean a lower credit limit of Rs. 1,50,000 and higher credit utilization rate of 33%, even if he keeps the card usage restricted to Rs. 50,000.
3. Limited credit card transactions: Use of credit card is often linked to impulsive spending nature and thus, people consider restricting the use of credit cards as the best way to escape huge outstanding bills. But, this could again badly impact the credit score, as little or zero credit transactions render an individual's credit file inactive. It is best advised to keep the credit card transactions active, but within reasonable limits that could be timely paid out.
4. Absence of loans: A good credit score calls for a good composition of a credit mix too. A decent credit portfolio of revolving credits like credit cards and non-revolving credits like loans makes up a good credit score.
5. Keeping tab on credit report: It is recommended that individuals should carefully check their credit reports periodically for errors or misreports. Sometimes banks and financial institutions report erroneously and keeping track of the report could help rectify the faults.
It is to be noted that an individual is ranked from 300 to 900 in CIBIL report and a score of 900 reflects low lending risk and lower possible default. Thus, a prudent credit management will ensure that an individual is not deprived of the loan and credit facilities.