When evaluating an individual’s creditworthiness, banks examine their CIBIL score. While savings and investments may not have a direct impact on your CIBIL score, they do influence it indirectly through various financial habits.
Payment history, debt-to-income ratio, loan repayment ability, credit mix, and credit utilisation ratio are all elements that influence the credit score, commonly known as CIBIL.
Let us understand these terms in greater detail here:
Payment History: Regular payments to savings and investments demonstrate financial discipline. This reflects positively on your payment history, which is an important component of your CIBIL score. Making regular payments on loans, credit cards, and other commitments helps to build a strong credit score.
Credit Utilisation Ratio: Savings can also impact your credit utilisation ratio, which implies the amount of credit you are using out of the total available credit. Savings can also have an impact on your credit utilization ratio, which is the amount of credit you use out of the total available credit.
By having savings to cover expenses, you may be less likely to rely heavily on credit cards or loans, leading to a lower credit utilisation ratio. A lower ratio is seen favourable for your credit score.
Loan Repayment Capacity: Investments such as fixed deposits, mutual funds, or stocks can improve your loan repayment capacity. Banks may see these investments as additional financial resources that can be liquidated if needed to repay loans. This can impact influence your creditworthiness and CIBIL score.
Credit Mix: While savings and investments do not directly impact credit mix, they can indirectly diversify your financial portfolio. Having a diverse mix of credit types, such as loans, credit cards, and savings or investments, can positively impact your credit score by demonstrating your ability to manage various financial products responsibly.
