Knowledge about your CIBIL score is essential whether you have a credit rating or not. A CIBIL score is a 3-digit credit number that is generated by TransUnion CIBIL (credit bureau) on the basis of past credit information of an individual. It ranges between 300 and 900. A minimum score of 750 is required for a successful loan or credit card application. The higher your score, the easier it is for you to avail an extended line of credit from the bank.
CIBIL scores are very important when it comes to the matter of loan approvals. It is a mandatory part of a bank’s process to check your credit score through CIBIL. This score helps determine your creditworthiness to the bank, which in turn will help you avail loans faster and without any hassle.
When you apply for a loan or credit card at a bank or a financial institution, the first thing a bank checks is the credit rating or CIBIL score so that they can determine if the applicant is eligible to avail the loan. Therefore, as mentioned above, if the credit score is high, the bank will take the application into consideration and move forward to approving the application.
Apart from the credit approval, read more to know how CIBIL influences other financial processes pertaining to an individual:
Housing Loans - Since a CIBIL credit score is the primary factor for disbursement of a loan application, it is important to have a good score in order to avail a housing loan or rent.
Interest Rates - A good CIBIL score will help you get the best interest rates and suitable terms & conditions for loan repayment. Higher the credit score, better the interest rate.
Other Applications - A good CIBIL score not only affects your ability to get favourable loans and good interest rates, but it also helps in getting approved for a new cell phone plan or help you get lesser insurance premiums.
Investment Information - This data comprises of your savings and investment accounts held with banks. These accounts also include fixed deposits (FDs), trading and current accounts. Your CIBIL report does not take into consideration any transactions that have taken place with respect to such accounts. A CIBIL report is only concerned with your credit status and history. It only tells about the credit history and debt activities that you perform.
Credit Status - Your credit status is determined by the CIBIL report, but CIBIL will not let you know in what purpose your scores are used. For example- your scores can be used in credit assessments or somewhere else but the final decision regarding disbursement of a loan lies in the hands of the lending bank.
Different Scores from Respective Agencies - Credit scores generated by CIBIL and other credit bureaus like Experian, Equifax and CRIF High Mark are never the same. This is because each credit bureau uses their own scoring model and formula to calculate credit scores. Another reason why your CIBIL score differs from the credit scores generated by other credit bureaus is that the updated credit information from different banks were reported to bureaus on different days.
Improving your Credit Score - Once the data has been recorded in the credit report, CIBIL does not provide suggestions to improve the score. It will not advise you to take another loan, reduce the number of credit cards or undertake any activity which negatively impacts your score.
Credit Utilisation Ratio - The ratio between your limit and usage. It should generally be maintained as 2:1. This ratio is not mentioned in the CIBIL report. Over utilisation and underutilisation of credit both affect your credit score.
Settlements - Once your debts are settled, the reasons for non-payment are not included in the report unless you are a serious defaulter. Certain circumstances such as a grave illness or accident might hamper an individual's ability to make a timely payment. These situations are hardly ever expressed once the settlements have been made successfully.
Defaulters List - CIBIL does not maintain any defaulters list or blacklists an individual if they are unable to make a timely payment. The only thing it will highlight is that because of your untimely payment, your score has been affected.
Monthly Payment beyond 3 years - Monthly reports up to the last three years are recorded in the Credit Information Report (CIR), any monthly report prior to three years is excluded. It is always a good option to make a habit of checking your CIR twice a year. This will also help you identify any errors in the report.
Having no CIBIL history does not mean that you will have an excellent CIBIL score- This applies to individuals who have never taken a loan or applied for a credit card. Since you have never applied for credit, the banks have never sent any credit information to CIBIL, hence CIBIL is unable to generate a report or credit score.
Soft Inquiries - If you enquire about your CIBIL score directly from credit bureaus or through authorised third party entities, it is called a soft enquiry. Soft inquiries do not impact your CIBIL score. Your CIBIL score gets hurt when banks, credit card companies and other creditors enquire about your credit report from credit bureaus (hard enquiry).
Closing your old credit accounts will have a negative influence on your credit score- Individuals with old credit accounts prove that they have managed their credit responsibly in the past. Therefore, banks prefer lending money to people with old credit accounts to new credit accounts.
What is a bad credit score?
A score below 300 is considered very poor. You will have to repair this score as soon as possible.
What is considered as a good score?
A good score for a successful loan or credit card application is 750.
How does my CIBIL score matter?
Your CIBIL score is one of the main factors that determine your eligibility to avail a loan or credit card.
Having a high CIBIL score can get you a lower rate of interest?
Yes, if you have a CIBIL score of 900, you can use this as a bargaining point to gain better terms and conditions when applying in the bank.
