Why A Variety Of Credit Types Improves CIBIL Score
Today, every financial activity you do is tracked by banks or by a credit bureau called CIBIL in India. You take care of you physical health; similarly taking care of your financial health has also become important now. Each time you apply for a loan or a credit card, you are assessed on the basis of your score if you are responsible enough to manage your finances and maintain a good credit score. CIBIL score depends on many factors with different weights. Like, most important of all is 35% weight which is given to your credit history.
A variety of credit types can improve your CIBIL score in the following way:
- A good mix or secured and unsecured loans
A good mix of secured and unsecured loans can help in attaining your CIBIL score. If you have one secured credit and no unsecured credit it might not help in attaining the good mix. One thing that helps you attain a high score is a good balance of secured and unsecured credit. A loan backed by an asset can be said as a secured loan and due payment of a credit card can be categorised as unsecured loan. As in, no payment in advance is required to pay the amount of credit card or at the time of disbursal of it. So it is always better to diversify your credit basket with mortgage, an auto loan or credit card to keep a high CIBIL score.
- Instalment credit
Instalment credit can help in improving credit score. Instalment credit literally means any loan that requires you to pay a fixed amount of repayment for every month for a specified period of time. Student loan, mortgage or loan for a vehicle can be said as an instalment credit. So, working professional for instance who would be looking up for a higher education loan or a vehicle loan, he can diversify his credit basket. This way a variety of credit can be achieved which can help you in skyrocketing your CIBIL score.
- Find the Right Balance
The technique to have a high CIBIL score is a right mix of credit types. You can apply for a mortgage, auto loan or credit card, but it does not mean applying for reckless credit. However, you should rather start applying for credit card at first so that you start building your credit history. This will prove your creditworthiness and hence you can build it up in professional life. The trick to have a good credit mix is to have a good balance of active credit. If you do not have a student loan and are not in a position to apply for a mortgage or an auto loan just as yet, do not be under the impression that no credit will help you have an impeccable credit score. While we are not asking you to be reckless and apply for loans, you may want to start out small and prove that you are creditworthy by applying for a credit card at first when you just start about in your professional life. A credit card is a great way to build your credit profile if you are using it responsibly. Making transactions on credit card and paying dues on time is a great example of its prudent use.
- A word of caution
When we say add variety to your credit, it does not mean to apply for every loan on offer. Many time, marketers approach with cold calls with different offers of credit at low rates of interest or lifetime free credit cards. But in this world of marketing, many things are sugar coated and true picture is never shown.
It is better to not go for any loan just like that; rather you will end up having unnecessary loans piling up which will not improve your CIBIL score. It will lead to large number of enquiries and investigations which can hamper your creditworthiness. Hard enquiries may be made by lenders, meaningly; lenders access your CIBIL report to see how creditworthy you are.