Having your credit score in the ideal CIBIL score range can enhance your access to credit. It enables you to borrow at lower interest rates and helps you get a tenure and loan amount of your choice.
As such, you need a good CIBIL score for personal loans, credit card approval, and other financial products or services. The ideal CIBIL score range for most financial services and products is 750 – 900, i.e., 750 and above.
One way to stay within this range is to avoid the pitfalls that can lower your score. The other option is to understand the factors that do not affect your score and leverage them to maintain and improve your credit score.
Continue reading to understand factors that will not hurt your credit score.
1. Checking Your Credit Report
Obtaining and checking your credit report is called a soft enquiry. It is a healthy financial practice with no adverse consequences for your credit rating. Regularly reviewing your credit report and credit score is an efficient way of overseeing your financial well-being.
With this proactive approach, you can spot errors in your credit report. These mistakes can negatively impact your CIBIL score for home loan or other forms of credit. You can find instances like misreporting some transactions or even some transactions that you do not recognise.
In case this happens, reporting these errors at the earliest is essential. Carefully monitoring your report also allows you to evaluate factors affecting your credit score. This can help you take corrective measures to maintain your credit score within the ideal CIBIL score range.
2. Decrease in Income
A decrease in your income does not directly influence your credit score. However, it can impact your personal and financial commitments. This can indirectly harm your credit score if you delay or miss the payment of your loan EMIs or credit card bills.
While the credit score calculation formula does not include your income, some financial institutions consider it when reviewing your loan or credit card application. They consider your income to get a picture of your financial standing.
Your income helps them understand whether or not you can comfortably repay new credit without any defaults. They may also assess your debt-to-income ratio, which is a proportion of the total debts you owe to the income you earn.
The debt-to-income ratio does not directly affect the credit score. However, it is ideal to maintain a low debt-to-income ratio to help you get quick loan approvals.
3. Getting Married
Getting married or divorced also does not influence your credit score calculation as it does not factor in your marital status. You and your spouse will have separate credit reports and scores after marriage.
However, if you and your spouse decide to open a joint credit account, these accounts will be on your credit reports. This means that delaying or missing your payments on these joint credit accounts can damage your credit scores.
A divorce also does not directly impact your credit score. However, late or missed payments to your joint credit account will impact your scores even if you get a divorce.
4. Paying Using Your Debit Card
Opting for a debit card to make payments does not influence your credit history or credit report. A debit card allows you to use the funds already available in your bank account.
This eliminates the necessity to borrow funds to cover your planned or unplanned expenses. On the other hand, when you pay through your credit card, you may borrow funds intending to repay the amount later.
This obligation of repayment also extends to prepaid debit cards. These types of cards come with a preloaded amount of money. Transactions that you carry out using this type of card do not get reflected in your credit report.
5. Getting Help from Credit Counselling
Engaging with a credit counsellor is a smart financial decision. It helps you get professional guidance regarding your finances from a reputable expert. These counsellors can provide valuable insights into debt handling, money management and budgeting.
There are multiple credit scoring models in use. Typically, they do not consider your participation in credit counselling. However, your actions after your counselling can affect your credit score. Your actions can improve your score and bring it within the ideal CIBIL score range or lower it.
6. High Interest Rates on Credit Accounts
The rate of interest on loans and the Annual Percentage Rates (APRs) on your credit cards do not play a role in determining your credit score. However, interest rates indirectly impact credit scores as they increase your outstanding debt.
Nonetheless, it is crucial to understand that while your credit scores are not directly influenced by the rates, late or missed payments on these accounts carry significant consequences. They negatively impact your score, imply that your financial standing is not strong and show that you may be unable to manage your financial obligations.
7. Your Bank Account Balance and Investments
Your credit report only includes information regarding your loans and the dues of your credit card. It is essential to know that your salary or savings account balance does not influence your credit score.
Furthermore, any investments you make also do not impact your score. It is a common misconception that having many investments, like fixed deposits, influences your credit score.
8. Non-Payment Related Bounced Payment Cheques
People often misunderstand that a bounced cheque can affect your credit score. This perception is not accurate. Bounced cheques for your utility bills, your child’s school fees, or similar expenses do not impact your credit score.
However, it is essential not to confuse these bounced cheques with cheques intended for your loan or credit card repayment. A bounced cheque associated with a loan repayment can significantly affect your credit score.
Your credit report records this as a missed payment, which can lower your credit score.
9. Non-Operative Saving Accounts
It is common to have more than one bank account. Usually, people have two bank accounts, one for expenses and one for savings. You may also have a bank account with a negative balance that you do not operate.
Any such inactive bank accounts do not affect your credit score. CIBIL does not consider the number of bank accounts you have when calculating your credit score. However, from a financial perspective, you must consider closing your inactive bank accounts.
It is important to monitor your credit reports and CIBIL score regularly to check for any changes in your score. There may be instances where credit report information is different from your actual transactions.
In case you come across any errors or discrepancies, it is essential to rectify them at the earliest to prevent any adverse effects on your score.