What is a CIBIL score?

It is a 3-digit number that is calculated based on your financial history. This score can range between 300 and 900 and is used as an indicator to determine your ability to repay loans borrowed.

The higher the CIBIL score, the better are your chances of getting loans approved at competitive interest rates. Lenders consider anything above 700 or 750 as an ideal CIBIL score.

How is CIBIL score calculated?

Four essential factors make up your CIBIL score. They are:

Payment History:
How have you repaid the loans you’ve taken till now? Timely payment of your EMIs and other credit dues positively improves your score, while defaulting or delaying repayments can make your credit score drop significantly.

Credit Mix:
How diverse is your credit mix? A balance between unsecured and secured loans is looked at as a positive sign. Unsecured loans refer to loans where there’s no collateral involved. Examples are credit cards, student loans, and personal loans. Examples of secured loans are mortgage-backed like home loans and auto loans.

Credit Enquiries:
A high number of credit card or loan inquiries can negatively impact your CIBIL score since it’s considered a sign of many recent loan applications.

Credit Utilization Ratio:
Credit utilization ratio refers to the amount of credit you have used compared to the total loan value. Lower the utilization, better your CIBIL score.
Lenders favor borrowers who are financially stable and responsible as they have better chances of paying back the borrowed funds.

Why is the CIBIL score important?

In any loan application process, the CIBIL score plays a crucial role. When you approach a financial institution or a bank for loan approvals or credit cards, the lender first checks your CIBIL score and report to determine your eligibility.

With a low CIBIL score, you might face challenges in getting a loan approved. In some cases, your application may get rejected outright if your CIBIL score doesn’t meet the required expectations. Or you might have to provide a higher down payment, collaterals, or interest rate than the standard terms for the proposed borrowing.

If you have a good CIBIL score, lenders will review your application and evaluate other parameters to determine if you’re eligible for a loan. With a healthy score, you have better chances of receiving the best terms and interest rates. It puts you in a stronger position to demand the best tenure and rates.

Advantages of a high CIBIL score

• Reduced interest charges on home and car loans
• Eligible for cards with higher limits, more rewards, and benefits, along with reduced interest rates
• Quicker and easier approvals for renting or leasing apartments and houses
• Access to longer tenure and a larger amount of pre-approved loans
• Faster approvals on mortgages and credit applications

How to Improve your CIBIL Score?

Here are some tips for building a stronger credit footprint:
• Pay your EMIs and credit dues on time
• Control your credit utilization and keep balances low
• Cancel dormant credit cards that you don’t currently use
• Don’t successively apply for loans within short periods
• Have a healthy credit mix of unsecured and secured loans

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A good credit score permits you to access funds when you need them the most. Frequently review your CIBIL score to ensure your credit history is accurate and to avoid facing rejection on your loan application.

Stay a step ahead of your finances always with the My Money App to track expenses and save for a better future.