4 Reasons for Poor Credit Score..!

4 Reasons for Poor Credit Score..!

Credit score plays a very vital role in everyone’s financial life.

For all who are not aware of credit score concept – this is a score provided by credit bureaus based of the financial track record of an individual.

India has four credit bureaus with CIBIL (Credit Information Bureau Limited) being the oldest & with highest coverage.

CIBIL score varies from 300 to 900  the higher the score the better it is.

This score indicates your creditworthiness for a future loan that you borrow. CIBIL Score is one of the major factors which decide if you can get loan & if yes how much.

A score of 750 or more would make you eligible for most loans across financial institutions.

However, a lower score might make your loan more expensive or / reduce your loan eligibility or /  in extreme case may also make you ineligible for any loan.

The good thing is you can improve on this score. But, before that lets understand why some people have poor credit score.

Reasons for Poor Credit Score..!

As stated earlier credit score is an indication of your re-payment behavior on future loans. Credit bureaus use your historical re-payment and other financial information to arrive at this score.

A poor score generally means, you have not been prudent in repaying existing loans or / credit card bills.

Here are 4 reasons for poor credit score:

1. Missing repayments / EMIs or / Credit card payment..!

 This is a major contributor to your credit score. So if you have missed your EMI payments in the past, it would have a negative impact.

If you miss some consecutive EMIs or / do so frequently, it will have more adverse impact on your score.

This indicates 2 things either you face cash crunch often or / are habitual defaulter – which means a risky borrower!

2. High Utilization ratio on credit cards..!

Utilization ratio is ratio of your credit card balance to your credit limit on credit card.

A higher utilization ratio is taken as negative by creditors. In case you go overboard & spend more than your available credit limit, this would make even more negative impact on your credit score.

3. Higher proportion of Unsecured Loans..!

Secured loans is one which is backed by assets such as Home Loan, Car Loan etc.

Loans  such as personal loans, credit cards are unsecured loans as you do not mortgage anything against these loans.

A higher proportion of unsecured loan can hurt your score.

4. Looking for too many Loans too soon..!

 Every time you apply for loan, the bank or / financial institution makes an inquiry about your credit score from credit bureau.

In case you have applied for multiple loans in very short time, it leads to the creditors thinking you as “Credit Hungary” that is person who is looking for a lot of loans in short time.

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