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How Does Outstanding Debt Affect Your Credit Score?

  • Highlights

  • Your credit score is gauged from your credit history

  • Delays and loan defaults could hurt your credit score

  • Acting as a guarantor for a defaulter will also do damage

  • Clear your bills on time to maintain a good credit score

Your credit score or CIBIL score is an important factor that determines how financially responsible you are perceived to be by a loan provider. Ranging from 300 to 900, this three-digit number is calculated by taking into account all your past credit history. Since this number reflects your trustworthiness, a credit score above 750 is important to get a good deal on your loan.

Check your cibil score for free

One of the biggest factors that determine your credit score is your existing debt. How can you deal with your debt in a way that helps you maintain a good credit score?

How to Improve Your CIBIL Score

Build Your CIBIL Score

There are various factors that go into building your CIBIL score. Around 25% of your credit score depends on the type of loan you have availed. The duration of your credit history also matters. Another 25% of the score depends on your total credit exposure. Other factors such as recent credit activities account for 20% of the score. What makes up a majority of the score is your past performance. This has an impact of about 30% of. Your performance is gauged from your past debt obligations. Outstanding debt therefore has a significant effect on your score.

Additional Read: Is your CIBIL score getting you down?

Impact of Loans

A loan is much more than just a liability. Your inability to make timely payments or settle it could have an adverse impact on your credit score. Also, in case you act as a guarantor for someone else who is defaulting on loan repayments, your credit score also suffers.

Impact of Credit Card Debt

Misusing a credit card or leaving credit card bills unpaid often burns a big hole in your credit report. While arriving at your CIBIL score, your outstanding credit card balance is considered. Your credit card balance amount is compared to the credit card limit allowed to you. Say, your card limit is Rs.50,000. Ideally, you should try to keep your balance under Rs.15,000, that is 30% of the limit. The lower the ratio, the better your score.

Tips to Strengthen Your Credit Score


a) Make Timely Payments

- Avoid missing a single payment. Ensure that you have a systematic repayment behaviour to improve your credit score.

b) Use Credit Cards Rationally

- Always keep your credit card outstanding balance as far as possible from the card limit. Try to limit your use to 30% of the limit.

c) Avoid Making Multiple Applications

- Avoid applying for multiple loans and a credit card all at once. Applying for too many loans in a short period of time makes you appear as someone who is desperate for credit.

d) Keep Checking Your Reports

- Sometimes you may have to pay for the mistakes of others. Check your credit report to see if there is any error and get it rectified on time.

e) Avail a Proper Mix of Loans

- Too many unsecured loans on your name may not be good for your credit score. Try to maintain a proper mix of secured and unsecured loans.

There are several factors that affect your CIBIL score. Your debt history is one of the major determinants. Simply follow a few cautionary credit behaviours and build your credit score.

Additional Read: Minimum CIBIL Score For Personal Loan

Once you improve your CIBIL score, you can check out pre-approved offers by Bajaj Finserv for personal loans, home loan, business loans and a host of other financial products.

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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