You must have heard that maintaining a good credit score is the key to faster loan approval, and there is no lie in this. A majority of the finance experts advise keeping a good credit score in order to get loan approvals and even unlock other benefits such as low interest rates on loans, higher amounts and a more extended repayment period.

Before approving a loan, most lenders usually look at your CIBIL score. CIBIL is an RBI-approved credit rating agency in India that generates your credit score based on the information provided by your bank and other lending institutions.

A good CIBIL score provides easy access to credit, while a low score makes it difficult. For getting loan approvals, your score should at least be 750. The closer your score is to 900, the easier it gets for you.

How Is CIBIL Score Determined?

Most people do not realise that many factors affect their score and unintentionally lower it. You must understand what affects your score and take action to avoid lowering it any further.

Factors Affecting Your CIBIL Score

  1. Being Irresponsible in Your Payments

Your payment history has to do a lot on whether or not your loan application will pass. You have to be responsible and punctual in paying your bills. Pay your credit card bills and loan EMIs on time every month. This irresponsible payment history suggests that you are not consistent in repaying credit, which throws off a bad reputation.


According to a CIBIL analysis, if you make a 30-day delay in paying, your score reduces by 100 points. To avoid this deduction, ensure that you make your payment on time and if you have multiple credit cards and loans, set reminders to avoid delays.


  1. Unpaid Debts

Outstanding debts leaves a terrible impression. When your credit report reflects unpaid debts, it takes a heavy toll on your score. Hence, it is advisable to repay all your existing debts before applying for any loan.

In other words, keep a tab on your debt-to-income ratio. Ensure that this value remains under 50%. Anything higher than this indicates a risk, making lenders reluctant towards lending loans.


  1. Applying for Multiple Loans

Whenever you apply for any kind of loan, be it a personal or gold loan, the lender will perform hard inquiries with credit bureaus to acknowledge the risk of default. Applying for multiple loans simultaneously will result in various hard inquiries on your credit report.

This little stint will reduce your credit score, and they will view you as a credit-hungry customer, resulting in the rejection of your loan application.


  1. Closing Your Old Credit Card Accounts

Your credit cards act as a great tool to build a great credit score history, but if you choose to close your old credit card accounts, you lose a long credit history associated with them. To avoid this, if you have a credit card for long enough, it is advisable to keep it open as long as possible.

  1. High Utilisation of Credit Limit

The lender sets a credit limit for every consumer depending on their income and the debt-service ratio. Your credit limit serves the purpose of suggesting how much money you can spend on repayments after the completion of any other commitments you have. If the utilisation of this credit limit increases above 50% regularly, it can put your score at risk.

  1. Sources of Income

The lender will need to check your monthly income to check your repayment capacity. For this reason, it is vital to showcase every source of your income in addition to your salary income. This means you have to include your part-time, rental, and other sources through which you are gaining an income.

Keeping track of your CIBIL score from time to time is necessary. Moreover, understanding the requirements before applying for a loan will maximise your chances of approval.


Author Bio: Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected].