Does Applying for Credit Affect One's CIBIL Score?

An individual’s CIBIL score is a critical factor that determines whether they will get approved for a loan as well as the terms and conditions of the loan that will be offered to them. Thus, all borrowers are advised to perform a CIBIL score check before applying for a loan and initiate the loan application process only when their CIBIL score meets their lender’s eligibility requirements. A good CIBIL score is anything above 750. Such a credit score is the mark of a responsible credit user who can be trusted with timely loan repayment.

Several factors affect a person’s credit score, including their repayment history, the length of their credit history, the credit mix they have, hard enquiries, etc. In this article, we look at how applying for new credit affects a person’s credit score as well as how to check CIBIL score for free.

Here’s How Applying for Credit Influences One’s Credit Score

Over the last few years, be it a home or a car, more and more people have been opting for loans to fund their purchases. Loans allow borrowers to afford things by paying for them in a systematic and stress-free manner. However, one should not take too many loans. Here’s why.

Every time a borrower applies for a loan, the lender to whom they have made an application sends an enquiry to a credit information bureau regarding the borrower. All enquiries made by lenders get registered as hard enquiries. Too many hard enquiries show a person to be credit hungry and also negatively impact their credit rating. Information about all applications one has made for new credit, including those that met with rejection, stays on one’s credit report for many years. It is thus that borrowers are advised to apply for a loan or credit only when they absolutely need it.

Borrowers must check CIBIL score for home loan before beginning the loan application process. Let us look at how borrowers can check CIBIL score for free.

How to Check Your CIBIL Score for Free?

If you want the most accurate and detailed CIBIL report, we recommend going to the official website of TransUnion CIBIL and subscribing to a plan. Based on the plan you have selected, you will be required to pay a fee and once you do that, you will be able to see your CIBIL score. Further, TransUnion CIBIL will send you a detailed CIBIL report as well.

However, if you want to check CIBIL score for free, you can do so by going to one of the many websites that offer this facility. You will be required to provide your PAN card or aadhar card details to help the website identify your credit report. Further, you will also be required to provide some personal information, such as name, email address, etc. Please know that this information will be safe with the website with which you have shared it. So, you need not worry about a data breach or security issues.

Also Read: Steps to Check CIBIL Score for Free in India 

Let us now look at how can borrowers improve their CIBIL score.

Simple Ways to Improve Your CIBIL Score

If you are applying for a home loan or a loan of any kind, check your CIBIL score. Apply only if your CIBIL score is above 750. If it is less than 750, follow the tips mentioned below to improve your credit score before beginning the loan application process.

Your credit history makes up 35% of your credit score. In other words, it is one of the key factors that determine one's credit score. Therefore, borrowers who want to increase their CIBIL score must keep their credit history clean by paying EMIs and credit card bills on time. In case a borrower misses an EMI payment, they must repay it as soon as possible.

The length of one's credit history is another factor that determines one's credit score. The longer your credit history, the better your credit score. It is for this reason that borrowers must never close old loan accounts. Closing old loan accounts leads to borrowers losing their credit history, which in turn, causes their credit scores to go down.

Also Read: How to Check, Calculate, and Improve CIBIL Score? 

Yet another thing that you must do to increase your credit score is limit loan and credit card applications. Too many credit card and loan applications show a borrower to be credit hungry. Every time a borrower makes an application for a loan, the lender sends an enquiry to the borrower. This enquiry gets registered as a hard enquiry. Borrowers should keep hard enquiries to a minimum as these reduce a borrower's credit score.

Borrowers must also check their credit report from time to time for errors. Credit rating agencies assign a CIBIL score to borrowers based on the information passed to them by lenders. Sometimes, lenders pass on the wrong information to borrowers, which leads to a borrower's credit score going down. Borrowers must check their credit reports from time to time for mistakes and misinformation. If they see any errors, they must report them immediately as rectifying errors takes time.

Those borrowers who want to increase their credit rating must also maintain a healthy mix of secured and unsecured loans in their kitty. Maintaining a healthy mix helps lenders assess a borrower's ability to handle all kinds of credit.

Lastly, borrowers who want to improve and maintain a good CIBIL score must maintain a low credit utilization ratio. The credit Utilization ratio is the ratio of credit used to credit available. A high credit utilization ratio is the mark of an unreliable borrower. Borrowers must try and keep their credit utilization ratio below 30%. They must also try and clear their full credit card bill each month.

Final Words

Following these simple steps will certainly help you build a good credit score and strong financial strength, which is crucial to avail of a loan on good terms and conditions.