Whether you need a personal loan or home loan, credit card or even insurance, your credit score will always play a major role in the process. So, it’s best to learn as soon as you can about how it’s calculated and what are the things that you can do to increase it.
Creditworthiness and its Evaluation
Your CIBIL score (i.e. the credit score) and creditworthiness are in a way the same thing. In fact, you can think of your CIBIL score as a numerical representation of your creditworthiness i.e. how “worthy” you are of receiving credit or loan from a bank. However, the question is what’s the reasoning behind CIBIL score calculation?
The first thing you need to understand that it’s not the banks that calculate your credit or CIBIL score, it’s the credit rating agencies such as CIBIL or Equifax that do it. The banks only submit the details of your loans, bank accounts, income, etc. to these agencies who then use their own assessment methods for your CIBIL score calculation. That said, banks do usually look at various factors other than your score itself to determine your creditworthiness, which are:
Your credit history pertains to the repayment of your loans, credit card bills, etc. However, what a lender wants to see is timely payments and “0” DPD values (DPD is used for loan payments and stands for Days Past Due. So, a “0” value shows that the payment was late by “0” days, or in other words- was on time).
It’s alright if you are occasionally late with a loan EMI because most lenders give you a grace period of a few weeks before notifying the credit rating agency about the late payment. However, you must still always strive to pay every single loan EMI and credit card bill on time so that you don’t end up with low creditworthiness and have to improve CIBIL score.
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