Things To Know About CIBIL Credit Score

Most intending borrowers are hesitant to apply for a loan because they fear their loan application might get rejected. Such a fear is not irrational as a loan application approval depends on several things and influences the terms of borrowing as well. However, individuals can prevent that if they check their CIBIL credit score before applying. This is because a high credit score is a key factor that helps secure loan approval and better terms of borrowing.

That said let us dive deeper into understanding more about credit scores and how the same affects an individual loan application and overall financial standing.

What is a CIBIL Score - In a Nutshell

CIBIL score is a 3-digit number that ranges from 300 to 900 and reflects an individual’s financial standing. In other words, it is a numeric summary of an individual’s credit history. Usually, a credit score of 750+ is deemed good, whereas, any score closer to 300 is considered poor. Notably, no history implies that an individual is yet to take out a loan or apply for a credit card.

The higher one’s credit score the more likely they are to secure loan approval. They are also more likely to have the upper hand at negotiating better terms of payment such as competitive interest rates, higher loan amounts, and flexible repayment options. On the other hand, a poor credit score reflects negatively on your eligibility and could lead to the rejection of a loan application, making it difficult to access funds in case of need. 

One can easily find their CIBIL credit score on their credit report. A credit report serves as a financial record of an individual and features depending on his/her borrowing history and current financial status with respect to loans and credit cards. Such a report comes in handy for lenders to ascertain applicants’ repayment capability.

Factors that Impact CIBIL Score

Here’s a list of factors that impact an individual’s credit score: 

Payment History

Paying off credit card bills and active loan EMIs on time is the most effective way to maintain a high CIBIL score. Delaying payment of credit card bills and active loan EMIs indicates that the borrower is struggling to repay the borrowed sum and might default. To prevent such situations, it is recommended to make timely repayments and activate auto payments to ensure the same.

Credit Utilisation Ratio 

The credit utilisation ratio is the percentage of credit that an individual is using from the available credit limit that is made available to them. It is recommended to keep this ratio to less than 30% in a month. This is because lenders use this ratio to determine how well an individual manages their debt burden. In other words, the lower the credit utilisation ratio the better it is for borrowers.

Type of Credit 

The proper balance of secured and unsecured loans in one's portfolio helps to improve one's CIBIL ratings. A balanced combination of both loans demonstrates a borrower's expertise in dealing with a range of accounts and credit forms. Ideally, a long credit history without any defaults is considered beneficial for credit score.

Missing Deadlines

Delaying or missing on loan repayment impacts one’s credit score negatively and overall creditworthiness. Every credit option comes with a deadline by which borrowers must repay their loan EMI or credit card bills. Failing to meet the accompanying repayment deadline erodes one’s credit score and leaves a mark on the credit report. Such a mark will further hamper an individual’s chance to secure loans or additional financial products. 

• Multiple Credit Applications

Applying for more than one credit option within a short time frame has an adverse effect on credit score and credit reports. Every time an individual applies for a credit, it prompts an inquiry which leaves a hard pull on the applicant’s credit report for a long time. This also creates a negative image of the borrowers, as they come across credit hungry in front of lenders.

Those in need of funding can choose to take out a loan from their fixed deposit account and repay the same on time instead of taking out a fresh loan. Individuals can use an fd interest calculator to ascertain estimated returns on maturity and plan their deposits and borrowings accordingly. 

Perks of Having a Good CIBIL Score

Besides increasing one’s scope of getting loan approval, a high credit score proves useful for a borrower in these ways:

• Helps avail a high loan amount: A high CIBIL credit score reflects a greater repayment capability. This assures lenders about the applicant’s creditworthiness, which gives them the confidence to approve a high loan amount.
• Increases the chance of bagging a lower interest: Usually, individuals with a high credit score and a healthy repayment record are more likely to avail of a loan or a credit card at a lower rate of interest. This will help make the loan affordable for the borrower.
• Avail flexible repayment terms: Individuals with a high credit score are more likely to succeed at negotiating better terms of repayment with the lender. They can secure flexible repayment tenure, multiple repayment options, and avail of other exclusive features and offerings, especially for credit card applicants. 
• Build a good credit history: Repaying loan and credit card bills on time and ensuring an adequate gap between two loan applications helps individuals not only escape the debt trap but also improve their credit history. This, in turn, increases their credit score significantly and helps them maintain the same. 

These reasons and more make it crucial to increase one’s CIBIL credit score and retain the same throughout. However, lenders also weigh in other factors such as age, employment status, monthly income, and other financial and personal details before approving the applicant’s loan application.

Hence, individuals need to work on their financial habits and increase their credit score to access funding as and when required and avail of quality assistance and exclusive features from their choice of lender.