Top Reasons for a Low CIBIL Score and How to Raise It

 

A free credit score check represents a three-digit score that represents the credit background and financial history of an individual. Based on the credit score, the loan provider decides the eligibility of a borrower. A credit score offers a good amount of information related to financial and credit history. It takes into consideration debt repayment, credit activities, credit utilization, and credit behavior. Therefore, having a good credit score has become vital for borrowers. A good free credit score is above 750, which is popularly accepted by banks and NBFCs. However, there are many individuals with a low credit score. The results of having a low credit score are loan rejection and expensive loans. It is important to understand the top reasons for a low credit score and how to improve it.

1. Missed or delayed payments are one of the most important reasons behind a low credit score. It is important to improve your score by making timely payments. Make your payment by the due date. Automate your payment so that you don’t miss or delay it.
2. Applying for too many new loans will damage your credit score. Every time you apply and a loan provider runs a hard enquiry on your credit profile, your credit score dips. Therefore, if your loan application is rejected, don’t keep applying for new loans.
3. Keeping an outstanding or overdue amount on a loan will damage your credit score. When you make a payment, it is important to pay the full bill amount without keeping any overdue or outstanding balance. Learn How to calculate business loan by using business loan calculator.
4. Closing an old credit account will damage your credit score. If you have a credit account with a long credit history, it will improve your score. New credit accounts do not add to your credit score.
5. Errors damage your credit score. It is important to understand that various small and big errors in your credit score may damage your credit score. Check your credit report on a regular basis to look for errors and have them reported.
6. Keep your credit mix balanced. Do not take only one particular type of loan. Have the right mix of credit and loans.
7. Your credit utilisation ratio damages your credit score. If you have completely exhausted your credit limit, it will damage your score. Pay your bills and do not exhaust the entire available credit limit.

Finishing up

A free credit score is essential at the time of taking a loan. It is important to conduct your free credit score check activities regularly. A free credit score check helps you to improve your credit score by detecting errors and improving it.

Must Read : How to build a good credit score?