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December 2, 2024
Customer Credit Behaviour has become a mandatory check before further lending for all kinds of Loans and Credit Cards. Every time an individual applies for credit, the financer sends an enquiry to a credit bureau—the primary ones include Equifax, Experian, Transunion CIBIL, or CRIF Highmark—to retrieve an individual’s score and history.
The Transunion CIBIL is considered the prime credit agency and maintains an exhaustive account of all credits. Understanding the CIBIL remarks is crucial as it empowers you to take control of your financial health. Keep regular updates and try to remedy the following observations in your CIBIL history that can lead to a score decline.
Every time an individual applies for credit, the financer sends an enquiry to a credit bureau to check the Credit history and CIBIL Score.
The lender views the credit history to verify the customer’s behaviour with credit. Your previous loans and outstanding Credit Card Dues play a significant role in the lender’s decision to issue further credit. Being aware of this can help you manage your credit wisely and avoid any negative impact on your Transunion CIBIL score.
Based on credit management, the type of credit usage, and repayment tracks, CIBIL issues a numeric score with a maximum of 900 points. The CIBIL Score is a benchmark adopted by most lenders today. A score of 750 points and above is the required CIBIL Score for Personal Loan Approval and the minimum CIBIL score for Credit Card Approval. Maintaining a good CIBIL Score is not just a requirement, but a responsibility that can open doors to better financial opportunities.
A hard enquiry by Banks can lower your Credit Score by 10 to 15 points, but if there are multiple enquiries within a limited period, this may increase to 20 points. Thus, if you apply to 4 Banks simultaneously for loans and Credit Cards, your score can be downgraded by 50 points or more. Besides your score downgrade, numerous requests make lenders cautious that you intend to get multiple forms of funding, which can be challenging to repay.
The Credit Card and loan application details remain on the Credit record for 2 years. However, if relegated by numerous enquiries, the effect on the score recovers within a year as long as the customer restricts the number of further applications.
It is a good idea for an applicant to make a soft enquiry before applying for further credit to ensure that the score is above the required benchmark and there are no surprises in-store, errors, or aberrations. A soft CIBIL enquiry made by oneself is not reflected in the credit history or affects the CIBIL Score. A soft enquiry is a credit check that does not affect your Credit Score, and it can be a useful tool to gauge your creditworthiness before making a formal application.
The EMI for your loan will be presented to the salary account on a pre-designated date if there are insufficient funds, the EMI will be returned unpaid. The lender reports the return of the EMI to CIBIL and other Credit Bureaus, and the time for which the EMI remains unpaid is reported as DPD or Days Past Due.
Similarly, if you miss the payment due date of your Credit Card Bill, the number of days past due will be reflected in your Credit history until the minimum owed or complete bill is paid.
For example, if your Credit Card Bill Payment is due on March 5th, and you cannot pay even the minimum amount owing until March 7th, a 2-day DPD is reported.
If an applicant misses paying a credit bill or has insufficient funds in the account to clear the EMI on the due date, a bounce is recorded. It is the applicant’s responsibility to make good the return as soon as possible.
A delayed payment or a once-in-a-while DPD remark is insignificant; still, a string of delayed payments in the credit accounts portrays that the applicants are not repaying the dues owed timely, which can be due to financial constraints or a careless attitude. This can adversely affect the credit ratings, as no lender will want to give excess credit to an applicant unable to fulfil commitments timely.
If pending payments are not made within a month, the delays are classified as 30, 60, and 90-day buckets.
If repayments are made after 60 or 90 days, an account is downgraded from Standard to Sub-Standard. Consistently delayed payments after due dates suggest that the applicant is under financial stress and unable to honour commitments.
The approaching EMI will further delay paying the pending EMI, making it difficult to get things in hand. The applicant’s intentions could be genuine, and the dues are paid within 12 months, but the applicant cannot maintain the payment schedule.
A healthy account moving towards a Substandard portrays that the applicant is under strain, with a medical emergency or shortage of funds, or has overindulged and cannot manage commitments.
The Credit Bureaus follow all credit tracks, continuously grading them according to the transactions. A substandard account signals financial stress and mismanagement, negatively impacting the credit score.
At this juncture, it is advisable not to apply for further credit, as Banks are apprehensive about giving funds to an applicant in a tight spot financially or who is not keeping up with the repayment schedule.
If your account is leaning towards a substandard category, now is the time to take action and prevent it from moving towards a Doubtful or Loss account, which can hinder your credit score and eligibility.
Credit is essential for acquiring assets and living comfortably today you can take the following steps to ensure your score remains intact. You can avoid the red flags in your credit record by paying attention to credit management. These red flags can include missed payments, high credit card balances, and multiple credit applications within a short period.
Current records suggest that consumerism is rising, with excessive credit usage compared to income and savings. This leads to restricted unsecured funding by Banks and an increase in rejection ratios, making it necessary to maintain on-time payment for all credit and a healthy CIBIL Score.
