11 Nov An Essential Guide to Understanding CIBIL Score
Maintaining a healthy CIBIL score is a must for a happy financial life.
But wait, what is CIBIL Score? Why does it impact an individual’s financial life? Here is an overview of the CIBIL score, its importance as well as the factors affecting it.
What is the CIBIL Score?
The CIBIL score is a 3-digit numeric summary indicating a credit history of a person. This score is derived using details found in the ‘Accounts’ and ‘Enquiries’ sections of an individual’s CIBIL report. CIBIL Score reflects a person’s creditworthiness, built on his/her borrowing and repayment history.
The number ranges from 300 to 900, where higher is considered better. Lenders typically look for scores of more than 700 or 750. In fact, 79% of bank loans are sanctioned with a CIBIL score higher than 750.
Why Is The CIBIL Score So Important?
CIBIL is the most trusted credit bureaus in India. Most banks and NBFCs trust its scoring technique as its accuracy level is much better than other credit bureaus in India. Owing to its credentials, lenders check an applicant’s CIBIL score when an individual applies for a loan.
So, CIBIL scores are crucial when it comes to taking loans. It is the first imprint of an applicant in front of the lender. In the Indian Financial System, the majority of banks and NBFCs are dependent on it for loan approval and disbursal. Be it home or vehicle loan, the loan officer downloads your CIBIL report to learn your creditworthiness.
The Advantages of a Good CIBIL Score:
- Approval of Loan: Banks and NBFCs approve loans and credits on the basis of your credit score. If the score is high, the chances of loan approvals are more with minimum paperwork.
- Rate of Interest Offered: The bank offers a lower rate of interest for those having a high CIBIL score.
- Credit Card Offers: People having a healthier credit score usually get a wide range of credit card offers from several companies that are not given to individuals with lower scores. These cards have more privileges, cashback, and higher limits.
- Negotiation Authority: If your CIBIL score is very high, you gain the negotiation authority wherein you can bring down your interest rate further.
- Higher Approval Limits: People with a higher credit score will get loans at a lower rate of interest and also most likely get the upper limit of loans.
- Approval of Leased/Rented Properties: A good CIBIL score helps you in easy approval of loans for rented or leased properties such as homes, apartments, or commercial complexes.
In case you have a low CIBIL score, it creates concern among the lenders while you apply for a loan or a credit card. Banks either do not approve the loan application or grant you a loan at higher interest rates. However, there are certain CIBIL score repair agencies in India that helps you in this area.
What Factors Adversely Affect Your CIBIL Score?
- High Credit Limits Utilization: You seek trouble if you always hit your credit limit and make only a minimum payment every month.
- Late Payments or Defaults: It creates a red flag if you make late payments always. It shows how financially unstable you are and how you are unable to meet your obligations on time.
- Length of The Credit History: A long credit history increases your CIBIL score. So avoid closing old cards as you would lose out on such history and good repayment behavior associated with it.
- Extreme Credit-Seeker: If you apply for more cards or loans even after having an ongoing loan or multiple cards, the lenders may be cautious as you could easily fall into the debt trap.
- Type and Duration of Credit: Make sure you don’t have a high unsecured or a secured credit. Maintaining a right balance of both secured and unsecured credit boosts your CIBIL score.
- Multiple Hard Inquiries: A hard inquiry is where lenders make the query when you go for a new credit card, a loan, or an increase in your present credit limit. This can lower your credit score to some level.
Now we know that a good CIBIL score confirms that you get a greater advantage over those having no CIBIL score or a lower score. So, why wait? Be a responsible borrower and be consistent in paying your bills on time. Also, keep checking your credit report periodically to understand your CIBIL score health.
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