You are no stranger to the fact that, it is essential for you to maintain a high CIBIL score to have access to loans when you need them. Just like maintaining your fitness profile you must also attend to your credit profile to ensure that your CIBIL score remains satisfactory. Here’s a closer look at how it can be done.
Your financial health is just as important as your physical health these days. In the modern times that we live in, each of your financial activity is being tracked not just by your bank, but the premier credit bureau in the country CIBIL that is keeping score based on your credit behaviour. Each time you apply for a new loan or credit card, your CIBIL score becomes a barometer of how creditworthy you are. Moreover, potential employers these days are increasingly asking for the CIBIL report of potential recruits. This is to assess how responsible they are with their finances and thus how trustworthy and responsible they will be in their jobs.
There are a whole host of factors that impact your CIBIL score. The most important factor that has a 35% bearing on your CIBIL score is your payment history. The other factors that impact your CIBIL score are credit utilization or how much of your total credit you have used, how long how you been servicing debt, the amount of new credit you have taken or applied for and the mix of your credit. Today, we are here to talk about how your credit mix can improve your CIBIL score:
1. Having a good mix or secured and unsecured loans
One thing that helps you attain a high CIBIL score is a good balance of secured and unsecured credit. A mortgage or an auto loan qualifies as a secured credit. But you cannot rest your laurels if you have only one of these and have no unsecured credit. A credit card with a reasonably high credit limit, or a personal loan qualifies under the head of unsecured credit. Unsecured credit means that no collateral or advance payment is required to be paid by the consumer at the time of the disbursal of such credit. Having a mortgage or an auto loan and credit card that you service on time is thus a good way to diversify your credit mix and thus keep a high CIBIL score.
2. Installment credit
Another type of credit that helps you score with CIBIL on the credit mix front, is having some exposure to installment credit. If you have do not have a mortage or a loan for a vehicle, you student loan too qualifies as installment credit. In other words, any kind of loan with a fixed amount of repayment each month under a pre-specified time frame qualifies as installment credit. So if you are in your first job and still servicing a student loan for a management degree or a vocational degree that you have recently completed, you are still scoring high with CIBIL as far as your credit mix is concerned.
3. Finding the right balance
The trick to have a good credit mix is to have a good balance of active credit. If you do not have a student loan and are not in a position to apply for a mortgage or an auto loan just as yet, do not be under the impression that no credit will help you have an impeccable CIBIL score. While we are not asking you to be reckless and apply for loans, you may want to start out small and prove that you are creditworthy by applying for a credit card at first when you just start about in your professional life. A credit card is a a great way to build your credit profile if you are using it responsibly. Spending within your means on the credit card and making outstanding payments in full is a great example of prudent use.
4. A word of caution
While we are reiterating the fact that you must diversify your credit mix, you should not consider it to be a green flag to go and apply for every loan on offer. In this intensely competitive financial world, telemarketers and even direct mailers are always trying to lure you with loans on “low rates of interest” or “lifetime free” credit cards, but do bear in mind that things are being sugar coated and you are not being given the full picture upfront.
So don’t bite the bait easily. Not only will you end up with a loan that you do not need, your CIBIL score may drop as a result of too many hard inquiries. A hard inquiry on your CIBIL report happens when a lender accesses your CIBIL score and report to see how creditworthy you are. Therefore your aim to diversify your credit profile may backfire against you!
Thus, as you can see diversification of your credit mix is a great way to improve your CIBIL score. It has a important bearing on your CIBIL score. But when you set out to diversify your credit profile, do so carefully so as to avoid it boomeranging on you and so that you don’t end up with a lower score instead!