Why does your CIBIL score keeps changing?

If you are conscious about your financial health, you are probably aware of the fact that you need to keep your CIBIL score above the level of 750 in order to access credit when you need it. Your CIBIL score is a measure of credit worthiness that banks assess, when you make an application for a loan or a credit card. Financial wisdom says that you must access your CIBIL score periodically to check whether it is satisfactory and whether your credit details have been recorded properly. This must be done especially 3-6 months before you are planning to get into a larger financial commitment such as a home loan and are contemplating making an application for the same.

Even if you do not plan to access credit in the near term, it is a good practice to keep a tab on your CIBIL score, just to ensure that things are in order. Sometimes if you check your CIBIL score in quick succession, you may find that your CIBIL score has altered within a short span of time, even though you have not made any large change in your financial habits. If this perplexes you, and you are in a bid to find out what makes your CIBIL score change, you are in the right place, for we are here to tell you just that! Your CIBIL score is not a just a three digit statistical figure that remains constant, but is dynamic in nature and keeps changing based on your credit behaviour.

What impacts your CIBIL score?

But before we delve into further details, let us tell you about some factors that impact your CIBIL score. Certain factors such as how much is your total outstanding credit card debt, how you handle repayments on your credit card, the total length of your credit, how much of your total credit you have utilized, how often in the recent past have you applied for loans and credit cards, and how regularly you have been making repayments on your loans, are the major factors that impact your CIBIL score. Now some of these factors have a short term effect, while certain other factors have a far reaching impact.

For instance, if you have been scouting for credit cards or a loan in the recent past and made a few applications in order to get the best deal, this information is recorded by CIBIL as “hard inquiries”. Each time a hard inquiry is recorded your CIBIL score goes down a few notches. So if you have checked your credit score in the previous month and happen to find that your score has gone down within a span of 15-30 days even though you have not changed the re-payment pattern you follow, do not be alarmed. It is probably because of the loan or credit card application you have made in the recent past.

All you have to do to increase your credit score, is continue to make regular repayments of your outstanding credit card debt and meet other credit commitments and you will be able to improve your CIBIL score shortly. However, do not make a habit of seeking out credit much too often, as that portrays you as “credit hungry” to a prospective lender and also keeps your CIBIL score low on account of too many hard inquiries.

The impact of your credit card debt

Once you have availed of credit, you come within the radar of the credit bureaus who keep score of your credit behavior. CIBIL being the oldest and most recognized credit bureau in India, the CIBIL score is widely tracked by most lenders. One major thing that can make your break your CIBIL score, is how you use your credit card. While on the one hand, it can prove to be great ammunition to build good credit history, if you use it judiciously, it can also damage your CIBIL score, if you are reckless with it.

For example, if you keep building up your outstanding balance and get into the minimum repayment cycle every month, it may wreck your CIBIL score and bring it crashing down. If you are a regular defaulter of payments, your financial behavior will reflect on your CIBIL score and keep it low. As a result, you may not have access to credit when in need of it. Even if you do manage to avail of credit, the rates of interest that will be imposed on you may be higher than the benchmark, as you will be perceived as a “risky” customer by the lender in question.

In order to enhance your credit score, it is important to make timely repayments especially on your credit card. Also ensure that your loan repayments are on schedule and your accounts are furnished for timely debit of the stipulated installments each month. Besides, keep track of your CIBIL score and CIBIL report at least every quarter, to keep a hawk eye on irregularities or erroneous entries if any. There may be other serious matters such as incorrect transactions that may show up on your CIBIL report. These may be indicative of identity theft. In case there is any such problem, you will need to raise a CIBIL dispute that will take time to resolve.

Just as you take care of your physical health, but conducting medical tests every once in a while, so you must take care of your financial health by maintaining good credit behavior tracking your CIBIL score. This will not only keep your CIBIL score high, but will open up doors for you when you are in the need of credit.