CIBIL Score: Overview
The CIBIL Score plays an important role in the Loan Approval Process. A CIBIL Score is a three-digit numeric summary (300 to 900) of your credit history.
Loans serve as great financial aid when in need of funds – be it an education loan for your child’s brighter future, a business loan for your new venture, a car loan, a Home Loan for a lavish purchase, or a personal loan to meet medical emergencies. However, to enjoy the perks, one has to have a good credit score. Read on to learn how to achieve and maintain a good CIBIL score.
What is a Good CIBIL Score?
A credit score above 750 is usually considered a good CIBIL score. The definition and range of a good score may vary slightly between agencies. In India, there are 4 credit rating agencies, out of which CIBIL is the most constantly referred credit bureau for credit scores and credit reports. Lenders typically prefer borrowers with a good CIBIL score as their ideal lending candidates.
Importance of a Good Credit Score
While credit score plays a vital role in a loan application, most borrowers overlook the importance of credit companies or bureaus. However, lenders largely rely on credit bureaus when evaluating loan applications. Therefore, credit history may limit your access to credit, which will significantly affect your finances. Nevertheless, there are simpler ways to ensure that you have access to credit whenever needed.
For any type of loan, the lender usually considers 750+ as the ideal credit or CIBIL score. However, the credit score margin is divided as follows:
| Credit Score | Rating |
|---|---|
| 800 to 900 | Excellent |
| 750 to 800 | Very Good |
| 625 to 750 | Fair |
| 625 and below | Low |
9 Effective Ways to Maintain a Good CIBIL Score
There is no surefire formula to achieve a high CIBIL or credit score – but there are certainly a few tips that could prove helpful. Here is how to maintain a good credit score:
Precise Credit Details
If you already have credit cards and loans, you should retrieve your credit score and information report to make sure that all the details are reflected accurately. Any inaccurate or negative reflection of your credit history may affect your credit score negatively, which is a key factor for loan evaluation. Your CIBIL score may further be affected if the credit history reflects as late or non-payment of dues.
Make Corrections
In case of inaccuracies, feel free to rectify your credit history. Borrowers must be aware that the credit company will take up the dispute request with the lender to assess the accuracy.
EMI to Income ratio
The EMI to income ratio is a benchmark that many lenders use to evaluate whether or not you are able to service additional debt. A ratio exceeding 0.5 signifies little or no access to credit. On the other side, the lower the EMI to income ratio, the better your chances of getting the loan approved.
Pay Your Loans Timely
One of the many ways to make sure you pay your debts on time is to set up electronic reminders. If you’ve missed payments, you can still keep track of it. Try not to default on payments if you already have an existing loan or dues since that will give out a negative impression to the lender.
Avoid Reaching Your Credit Limit
Ideally, credit usage should not exceed 30% of the credit limit. Be sure to pay the balance every month.
Long Credit History
CIBIL scores in India are based on experience rather than on time. The more experience your credit report shows, the more information there is to ensure whether or not you are capable. Applying for a huge credit in a short period of time implies to the lender a sudden change in your economic condition.
Crosscheck Credit Reports
Keep an eye on old credit card accounts that are not in use. In case of suspected errors, be sure to get them corrected.
Refrain from Multiple or Frequent Enquiries
Applying for many loans at the same time shows that you are very eager to borrow funds, which can make lenders worried. Each time you apply for a loan, the lender checks your credit, and if you do this often, it makes lenders think you're not a good candidate and might reject your loan application. So, it's better to only apply for new loans when you really need them.
Ensure a Credit Mix
To keep a good credit score, it's important to have a balanced mix of credit. This means having different types of credit, which helps to balance the risk involved and can result in a better credit score. Having a healthy mix of credit doesn't cause trouble for banks, and it prevents the applicant from being seen as a high-risk borrower.
How to Improve Your Credit Score?
Are you worried about a low credit score harming your loan eligibility? Follow these tips below to improve your credit score:
-
Check your credit report regularly
Develop a habit of checking your credit reports regularly. It will help you identify errors easily. Once identified, take steps to correct your credit report. You can easily check your credit reports from the credit bureaus once every year for free by following the instructions mentioned on their website.
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Bring down your credit utilisation
The measure of how much of available credit you’re using is referred to as credit utilisation. Try to utilise 30% or even less of your overall sanctioned credit limit.
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Repay your bills in time
Delayed and missed repayments are the most common reasons behind low credit scores. So, make sure you repay all your bills well in time.
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Consider using a secured card
Use a secured card to build a credit history if you have a low credit score. Consider choosing a secured card that reports to most of the credit bureaus. It will make it easier for your good repayment behaviour to improve your credit standing.
Benefits of a Good Credit Score
- Competitive Interest Rates: Good CIBIL scores lead to more competitive interest rate on Home Loans, reducing the overall cost of borrowing.
- Higher Chances of Loan Approval: Lenders are more likely to approve loans for those with strong credit scores.
- Higher Loan Amounts: A good credit score can result in approval for larger loan amounts, enabling the purchase of a more valuable property.
- Improved Negotiating Power: Borrowers with good credit can negotiate better terms and conditions with lenders.
How to Check CIBIL Score?
To check and ensure a good credit score, you can simply follow these steps:
- Visit the lender’s website to track the CIBIL score.
- Enter personal details – address, mobile number, email ID etc.
- Register yourself using the OTP received on your email/mobile number.
- Check the credit score on the screen.
- Apply for personalised loan plans based on the credit score.
In a nutshell, the CIBIL score is one of the key factors in determining one’s creditworthiness, that is, whether or not the borrower is capable of repaying the loan amount on time. The higher the score, the better the chances of loan approval. In case you are wondering how to maintain CIBIL score, track your credit information regularly to ensure a good and accurate credit score in moderation.
*Terms and conditions apply.
Good CIBIL Score: FAQs
Yes, although a score of 750 and above is usually considered good, the score of 700 to 750 is also considered not bad by many lenders. However, it is best to have a score above 750 to find better deals at lower interest rates.
The definition and range of a good credit score is universal and not particularly related to the borrower’s age. Which means, any score above 750 is a good credit score at any age. However, it is expected that as the age advances, the credit score is maintained at the higher end of the credit score spectrum.
Reaching and maintaining a high credit score of 850 requires you to undertake measures such as diligently paying your EMIs on time without missing any of them, maintaining credit ratio of less than 30% on revolving credits, and seeking out new credits only when necessary. It also requires you to have a good credit mix of secure and unsecure credits, retaining your old credit accounts and avoiding hard enquiries on your account.
In general, depending on what score you are at right now, what have been your past defaults and how well you manage your finances from hereon, it could take anywhere from as low as a month to as much as 5 years or even more to see changes in your credit score. Note that it is an organic process that requires a little patience.
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