In India, Credit Card bills, EMIs and Loans can affect your credit score. Household bills are not included in what bills help build credit when credit history is evaluated. When considering what Bills Affect Credit Score, Indian credit bureaus do not factor utility and mobile bills in payments.
Even a single payment that is missed can reduce the CIBIL score. This can decrease your creditworthiness. It will also cause banks to reject loan requests after they check credit score. Credit card companies will reduce the credit limit on a card.
There are two kinds of payment defaults – major and minor.
Payments that are missed or delayed for less than 90 days are considered minor defaults. While this does affect the CIBIL report, it's temporary.
When you do not make the payment after 90 days, your account is classified as an NPA or non-performing asset. This is a major default, and most lenders tend to reject applications from such candidates.
Thankfully, there are a few steps that you can take to ensure that you are in the green when lenders check credit scores.
Financial institutions, such as banks, maintain detailed credit history reports of borrowers to check credit score. Such a CIBIL report can be traced back to the first time you applied for credit. Positive credit history affects your credit score favourably.
One good way to maintain a long and healthy credit history is to hold on to your old credit cards. When you discontinue a credit card, you lose the credit score that comes with it. This can lead to a drop in your credit rating.
Credit utilisation ratio refers to the amount of credit that is availed from a given limit. It is calculated as a percentage.
For example, if you possess 3 credit cards that have individual credit limits of Rs.1.5 lakhs, Rs. 1 lakh and Rs. 50,000 respectively, you have a total credit limit of Rs. 3 lakhs. If you have drawn Rs. 90,000 on these cards, you will have a credit utilisation ratio of 30%.
The creditworthiness of a borrower is determined by how low the credit utilisation ratio is. When they check credit score, lenders prefer a ratio that is less than 40%. If you want o to maintain a healthy credit utilisation ratio, avoid using up too much of your credit limit. You can do this by paying your credit card bills regularly.
Suppose your monthly income is Rs. 50,000 and the total EMI you pay is Rs.10,000. Your EMI to income ratio will be 20%.
When lenders check credit score, they prefer a maximum EMI to income ratio of upto 40%t. This is based on the assumption that you will need at least 40% of your monthly income to meet your expenses. However, if you are applying with a co-applicant who also has a stable income, the joint EMI to income ratio will be considered.
Timely payments of your EMI, loans and credit card bills will help you to maintain a good CIBIL report. A healthy credit score will enable you to command favourable terms of borrowing from lenders in the future.
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