Everything you need to know about CIBIL Score

“ your credit score and credit report are two most vital aspect of your financial health”

Ever wondered after generously paying all the credit card bills, the last loan you took for buying the latest smartphone or your personal home loan, what are you getting in return?

Well, it’s a three-digit magic number that eventually helps you to get more credit in the future and enables the financial institutions in determining your creditworthiness and your ability to repay the loan. It’s called the “Cibil” score. Do you know that nearly 79% of loan applications are sanctioned only if the borrower has a CIBIL score of 750 or more, thus it becomes an important area of our discussion? In today’s article we’ll be talking about what exactly is a CIBIL score and why it is important for you to maintain a good credit score.

What is a CIBIL score ?

As discussed earlier a Cibil score is nothing but a three digit Number which ranges between 300- 900. It comprises of customer credit profile, credit utilisation, past unsecured /secured loans history and all such information that enables banks to inspect the credit worthiness of borrowers. Simply put in it’s a score which affects your future access to credit If you have a credit score more than 650 it is considered good on other hand a credit score in the range of 300-550 is considered as bad. Credit score that falls in this range means you will need to take serious measures to improve it. Having a bad credit score will not make you eligible to avail a loan or  even get a credit card.

History of CIBIL

CIBIL stands for “Credit information bureau of India” it was incorporated in 2000 under the guidance of Reserve Bank of India Siddique Committee. It is oldest credit information company India. Cibil collects and records the repayment of loans and credit cards by both individuals and companies. So next time you avail any credit facility from any bank, NBFC, credit card companies Cibil got you covered.

How is CIBIL score calculated?

Your credit score is influenced by your past credit repayments which comprises  35% of your credit score followed by your credit balance and  utilisation ratio which contributes 30% of whole score. Your new credit request and mix contributes nearly 10% Each and the rest 15% is length of your credit history. To make you understand things in better manner is  attaching below an image depicting the same ;

Difference between Credit score and credit report

Now I’m pretty much sure that you know what Cibil score is and how it is calculated. We have another term in the basket it’s called “Cibil report”. These two things go hand in hand where Cibil score is calculated by different credit companies using multiple parameters and is a numerical term whereas credit reports are documents that have detailed information about their credit history. Your Cibil score is calculated taking in CIR or credit information report. Credit report is generated by credit bureau and contains all your basic information like  PAN number, name, address, gender etc. and all your credit information like types of loans availed in the past, ongoing loans and their subsequent repayment timeline, loan/credit card defaults and loan settlement details.

Benefits of good Cibil score

Access to future credit

It is one of the first things that lenders look into when evaluating loan applications. Your ability to pay determines whether you’ll be eligible for credit or not. Generally credit score of 650 plus assures that you get personal or home loans without any difficulties.

Low interest rates

If you have a good Cibil score if let’s say 750 and more you can negotiate with the lender regarding less interest rate charged on loan since the score itself  ensures that you have a sound financial background and your possibility of defaulting on loan is less.

Chances of getting high Amount loan is substantially increased

Generally offering high amount of loans is risky for lenders so they make sure that they lend to the right people. High Cibil score enables you to get high ticket loans like home loans easily.

Your chances of getting long tenure loan increases

With a high CIBIL score you can get approval on longer tenures on your loans which in turn will makes your EMIs smaller. It can help you manage your monthly finances alongside your home and auto loans.

How to improve your cibil score?

Be punctual and make all your payments on time

In order to maintain good Credit score ensure that you do not have any outstanding bills and dues and if any ensure that you pay them instantly. Make use of  Auto debit facility provided by banks and institutions so that next time don’t miss any deadlines.

Use Credit wisely

There’s a beautiful quote “credit is a necessity for survival and balanced credit promotes growth\” on the other hand excessive credit can prove to be disastrous for your financial health.

Balanced Mix of loans

Secured loans such as home and  loans, which are taken for creating additional assets, have a positive impact on your CIBIL score. On the other hand, un-secured loans such as car and personal loans may adversely impact your CIBIL score.

Evaluation and Monitoring of Credit report

Make sure you constantly check your credit reports on a monthly basis. Sometimes CIBIL may make mistakes when it comes to updating your records, incorporating incorrect information against your report, and delay in recording updates. Constant monitoring ensures that you rectify the errors without any delay.

Conclusion

If you want to get a high ticket loan that too at bearable interest charges maintaining a good credit score will definitely help you in getting that. Also, it ensures that in times of emergency you actually don’t have to struggle a lot since a good Cibil score means quick and easy approval of loans.