What is CIBIL Score? Is it a number? Is it your score on a test? Or from a game you played as a kid? Well, it’s not really any of these. You see, CIBIL stands for Credit Information Bureau India Limited and is used by Indian financial institutions to compute your credit score. This score is generally referred to as the CIBIL Score. The numbers range from 300 to 900, and the higher you are, the better it is.
What is a credit score?
This is a three-digit number that goes from 300 to 900. It determines your credit risk or creditworthiness, i.e., how likely you are to pay your EMIs and credit card dues on time.
Credit bureaus such as TransUnion CIBIL, Equifax, and Experian publish credit reports and credit score that helps financial institutions to help assess the creditworthiness of the loan or credit card applicant.
There is nothing to worry about if you don’t know how to check your credit score/CIBIL score. You can go to the official CIBIL website to check your credit score.
Payment history, the debt amount, and the credit history timeline can be found in your credit report, impacting your credit scores.
What is CIBIL Score?
Your CIBIL score is the primary thing any lender will look at to evaluate your loan application. A good credit score means that you have responsibly handled credit. A CIBIL score ranging from 700 to 900 is considered a good credit score.
This makes future lenders confident that you will be able to pay back the dues on time.
Here’s how the CIBIL Credit score is segregated:
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<600
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Low
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600-649
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Difficult
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650-699
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Possible
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700-749
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Good
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750-900
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Excellent
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As per the CIBIL website, there is a 90% chance that individuals with a CIBIL of above 750 will be granted loans.
Importance of good credit score
We have seen that a CIBIL score above 700 is considered to be a good CIBIL score. But what is the importance of a good credit score? Let us find out in this section.
Better chance of getting a loan
It is important to understand that other variables play a role when applying for a new credit card or loan. Lenders also analyze vital variables such as the income, existing debt of an applicant.
So, having a good CIBIL score isn’t the only parameter. However, having an excellent CIBIL score can make you more confident while applying for a loan or credit card.
Get the best interest rates
Individuals with high CIBIL scores can qualify for the best interest rates. It is because lenders see the individual as a financially responsible person who can pay the dues on time. So, the low interest rates help people with good CIBIL scores save money on their loans.
Ability to bargain
Having a good credit score means that you will pay less for a credit card or a new loan. If you need extra negotiating leverage, you can use other appealing offers based on the credit score that you’ve gotten from other financial institutions. Creditors are unlikely to compromise on the loan interest rate if you have a poor credit score as you may not have any alternative credit offers or possibilities.
Get approval for higher limits
Your borrowing power is based on how much money you make and how good your credit score is. Banks are more probable to let you borrow more money because you have shown that you pay your debts on time. Having a good credit score is one of the benefits of having a good credit score.
How to improve CIBIL Score?
We have seen the importance of a good CIBIL score. Having a good CIBIL score is an important element of adult life. But what if your CIBIL score is low? Let us know how you can improve your credit score.
Check CIBIL Score:
Checking your CIBIL Score and Report should be the first thing on your to-do list. It is because checking your CIBIL report can help you to understand the reason behind your poor to average CIBIL score.
Your CIBIL score may have taken a toll due to a wrong entry, or someone might be misusing your personal details. You can figure out the problem areas after carrying out a detailed analysis of the credit report.
Not applying for multiple loan products
You may be tempted to apply for a loan at a different bank or NBFC if a financial institution rejects your loan request. But, hold your horses.
When you apply for personal loans, credit cards, home loans, or any other type of debt, financial institutions do a hard pull to review your credit record to make a subsequent loan decision.
Multiple hard inquiries have a basic problem in that they cause lenders to build a bad image of your credit behavior. Too many hard inquiries in a short period of time portray you as a credit-hungry consumer with a high-risk quotient. When presented with high-risk profiles, most lenders would either reject the application or give a ridiculously high rate of interest, which is simply not what you are looking for.
Pay loans on time
If everything looks fine, late payment of loans or credit card dues can impact your credit score. So, if you are prone to postponing payments to the last moment, opting for auto-payment of credit card bills and loan EMIs can be a better option. Moreover, many credit card holders fall for the minimum required payment. It is nothing but deferring your payments to a later date, which means that you cannot pay your dues on time, which might impact your credit score. Payment history makes up 30%, the highest percentage, of the credit score. So, you need to focus on timely payment if you want to increase your credit score. Set up alerts, automatic payment, and pay your credit card dues completely to improve your CIBIL score.
Mix of debt
Another critical factor that affects your credit score is the mix of debt. Debt can be classified into secured debt i.e., the loan is backed by an asset such as a home loan, gold loan, and unsecured debt such as credit card and personal loans.
If unsecured loans are prominent, it might negatively affect your credit score. It is because financial institutions might see you as credit hungry person.
So, it is essential to have a mix of secured and unsecured debt.
Keep a low credit utilization ratio
Do you think you should utilize 100% of your credit card limit? The credit utilization ratio is the amount of credit you utilize vis-à-vis the total amount of credit limit available. If the credit limit of your credit card is Rs.1 lakh and you use the entire limit, your credit utilization ratio will be 100%.
If you have been utilizing your entire credit limit, it is time to pause and think. It might be the reason behind your poor credit score.
According to industry leaders, it is best to maintain a low credit utilization ratio of 30%. This tells the credit bureaus that you can handle credit properly without going overboard.
If you have two or multiple credit cards, it is best to use different credit cards. This will also help to keep the credit utilization ratio low. For instance, if all your three credit cards have a credit limit of Rs.1 lakh, you can divide the use of Rs. 1 lakh among the three credit cards. In this case, the credit utilization ratio will come to 33% from 100%.
Not canceling old credit cards
Many people mistake canceling their old credit cards when they get a new credit card. While this may seem the natural thing to do, it may negatively impact your credit score. It is because your credit history is also a significant determining factor in your credit score. So, instead of canceling your old credit card, keep using your old card occasionally. In addition to keeping your credit history intact, it can also help to reduce your credit utilization ratio.
Have Patience
It might take some time to improve your credit score. So, be patient, continue to pay your bills on time, and keep a low utilization ratio.
Conclusion
If you have a bad CIBIL score, you do not need to lose heart. All you need to do is take the necessary action to improve your CIBIL score. Either take a secured loan or opt for a secured credit card with zero interest charge and pay on time. This will show that you have repaid your debt in time, and the banks will be confident to trust you with more loans.
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