A bad CIBIL score may come as a shock to you especially so if you have applied for a loan and the loan is rejected leaving you in a lurch. Often you may even not be aware that the score is low or you may feel that you are a responsible borrower and therefore there is no reason for you to have a low score. Reasons For a Bad CIBIL Score:
There are five main factors that go into the credit score calculation, so obviously ignoring one or more of them can impact the score adversely. Some may impact the score more in comparison to others but a combination of all the factors makes the final score.
This is one the most crucial and also the most obvious cause of a low score. Missing payments or make late payments is sure to harm your score. The more frequently you do it the more harmful it is for the rating. Missing even a single payment will be reflected in the score but if you have been regular mostly then the impact will be negligible. So pay your credit card dues and EMIs on time always!
Excessive use of credit cards is something which also impacts the score negatively. This may come as a surprise to many especially if you do pay your dues on time. The common belief when one uses a credit card is that as long as you pay your dues on time and stay within the credit limit there should not be a problem? However this is not the case; over dependence on credit cards and using more that 30% of your credit limit puts you in a high risk category and reflects credit hungry behavior. So if you card usage is high, then you should consider getting a bigger credit limit sanctioned if you are eligible for it.
This also may come as a surprise reason for a low score. Borrowers may assume that paying old dues which have been pending on their report for a while may be a good thing however this is not the case. If you pay your old debt but do not pay the entire amount and the account is reported as "settled" then it could spell trouble for your score for a long time. So if you are repaying old debt ensure that the lender reports it as "closed" or "paid" and not "settled". Get a free credit report to check the status of your account after repaying dues and see how it has been reported.
Whenever you apply for a loan, the first thing the prospective lender does after receiving the application is ask for your credit report. This is called a hard enquiry. All hard enquiries are reflected in your CIR and too many hard enquiries lower the credit rating. Whenever you apply for a loan do so only if you are absolutely sure about meeting the eligibility criteria laid down by the lender so that you are not forced to apply for a loan again due to the application being rejected. Also try to space out your loan applications.
Balance between secured and unsecured loans ensures that you have a healthy rating. A higher ratio of unsecured loans is not good for the rating and one should avoid piling up unsecured debt. So if you apply for a personal loan and it is rejected due to a low score then opt for a bad CIBIL score personal loan. Look for other sources of funds and work on improving your credit rating.
So get your free credit report and go through it to understand your credit health position. If required look for ways that can help you improve your rating.