If you are planning to apply for a loan of any kind, know that your lender will approve your loan application only if you meet their qualifying criteria. Lenders set qualifying criteria to ensure the safety of their money and can reject applications from applicants incapable of timely repayment of loan money. Loan eligibility requirements vary around factors, such as age, income and job stability, credit score, etc.
The credit score is one of the key factors that affect one’s chances of getting approved for a loan. It is also one of the first things that lenders check about a borrower after they apply for a Home Loan. A credit score is a three-digit number ranging from 300 to 900 that reflects a borrower’s creditworthiness and repayment capacity and the risk involved for a lender in lending money to the loan applicant. A high credit score (between 750 and 900) indicates high repayment capacity and minimum risk for the lender. Thus, borrowers with a high credit score enjoy quick approval and the best loan terms and conditions. A low credit score, on the other hand, makes it difficult for borrowers to avail of a housing loan or a loan of any kind.
Several different factors affect an individual’s credit score. Before we discuss these factors, let us answer a question that many loan applicants have about their credit score: is an individual’s savings account balance one of the factors that affect their CIBIL score? Read on to know the answer.
Can an Individual’s Savings Account Balance Affect their CIBIL Score?
Before we answer this question, let us clarify that the terms credit score and CIBIL score are often used synonymously in India but are not the same. In India, there are four recongnised credit information bureaus: CRIF Highmark, Equifax, Experian and TransUnion CIBIL. Of these four, TransUnion CIBIL is the oldest and most popular. The credit score that TransUnion CIBIL assigns credit users is known as the CIBIL Score. The credit scores that the remaining three agencies assign credit users are known as credit scores.
Now, does an individual’s saving account balance affect their CIBIL score?
Savings are not a credit product and therefore, do not have a direct impact on your CIBIL score. Everything that affects your CIBIL score makes its way into your CIBIL report. You will not find your savings in your CIBIL report as they do not directly affect your CIBIL score. However, your savings balance account may affect your repayment capacity and therefore, your CIBIL score indirectly. When you apply for a loan, your lender may check your savings account balance to decide the loan amount you are eligible for. However, your savings account balance will have no impact on your credit score.
So, what are the factors that affect your CIBIL score? Read on to know the answer.
What Factors that Affect Your CIBIL Score?
The following factors affect a person’s CIBIL score.
1. Repayment History:
An individual’s repayment history makes up almost 30% of their CIBIL score. If you want to build a strong credit score, you must build a strong repayment history. In other words, pay all your loan EMIs and credit card bills on time. Never miss a due date. If you do miss one, clear the missed payment as soon as you can. This will help you build a strong CIBIL score.
2. Credit Utilization Ratio:
The credit utilization ratio tells lenders the percentage of one’s credit card’s total limit that is currently being used. A high credit utilization ratio indicates a high dependency on credit, which is seen as a negative thing. Thus, borrowers with a high credit utilization ratio have a low credit score. Borrowers trying to improve CIBIL scores must keep their credit utilization ratio under 30%.
3. Age of Your Credit History:
The age of your credit history also affects your credit score. The longer your credit history, the better your credit score. So, never close old loan accounts and credit cards, even the ones that you have paid off or are no longer using.
4. Credit Mix:
The credit mix you have will also affect your credit score. Borrowers who have both secured and unsecured loans are seen as more reliable borrowers by lenders and also have a higher credit score.
5. Hard Enquiries:
Lenders approach credit information bureaus when a borrower makes a loan application to enquire about the borrower and their repayment capacity. This enquiry that a lender makes about a borrower gets registered as a hard enquiry. Too many hard enquiries affect a person’s credit score negatively. Borrowers working on improving CIBIL scores must refrain from making too many loan applications simultaneously.
How Can Your Savings Account Indirectly Affect Your CIBIL Score?
A common question that loan applicants ask is that an individual’s savings account balance has no direct impact on their CIBIL score. But how does one’s savings account affect their CIBIL Score indirectly?
The balance you have in your savings account affects your repayment capacity. If you have a decent amount of savings, you may be able to honour your EMI commitment, even in case of adversity. Thus, borrowers who have a good savings account balance rarely default on loan repayment and therefore, have a good CIBIL score. On the other hand, borrowers who do not have savings, may find themselves missing EMI due dates and incurring late penalties, especially when faced with a financial emergency.
Frequently Asked Questions
Your savings account balance has no direct impact on your CIBIL score. However, your savings account balance can affect your credit score indirectly.
No, as stated previously, savings is not a credit product and therefore, does not impact a person’s credit score. A person’s savings account balance does not even appear in their credit report.
No, you can have as many savings accounts as you want and can easily handle. Your savings is not one of the factors that affect your CIBIL score and therefore, the number of savings accounts you have will not affect your credit rating.
